Why the RBA’s inflation problem just got trickier

When US Federal Reserve chairman Jerome Powell crushed talk of an interest rate pivot this week, he caused sharemarkets to plunge. But for global central banks walking the tricky line of balancing surging inflation with economic growth, the moment was instructive.

“I am trying to ... make sure our message is clear, which is that we think we have a ways to go, we have some ground to cover with interest rates, before we get to that level of interest rates we think is sufficiently restrictive,” he said. “I’ve also said that the level of rates that we estimated in September, the incoming data suggests that’s actually going to be higher.”

This week, the RBA revised up its forecast for peak inflation to 8 per cent this year and predicted high prices would linger for longer, with CPI inflation still at 4.7 per cent over 2023, and remaining above 3 per cent into 2025. But, in contrast to the Fed’s Powell, Lowe appears less inclined to use rates as a sledgehammer and, as Westpac economists noted this week, there appears to be a divergence on how each bank is viewing the risks.

“We are not on a pre-set path,” he added. “If we need to step up to larger increases again to secure the return of inflation to target, we will do that. Similarly, if the situation requires us to hold steady for a while, we will.” Barrenjoey chief economist Jo Masters was surprised by the RBA’s relatively small rate rise this month given the detail in the latest quarterly inflation data suggesting inflation was becoming more pervasive across the economy.who called for a half-point rate rise this week

Meanwhile in an exercise of poor timing, Biden is forgiving millions of education loans, now. Plus, those 'inflation buster' package passed is fully funded by borrowing more thus more money printing from Federal Reserve. So, what is the different between him and Liz Truss?

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