The national accounts show just how wrong the RBA was to raise rates in November

by David Richardson

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In the September quarter, household living standards fell as rate rises continued to hurt. And then in November the RBA decided to hurt them again.

In March 2021, the then Governor of the Reserve Bank, Philip Lowe told Australians that interest rates would very likely stay at the record low of 0.1% until at least 2024. Since then the cash rate has risen 425 basis points to 4.35% and the total amount of interest repayments paid each quarter by Australian households has risen by 173% from $10,869m in the March 2022 quarter to $29,700m in the September quarter this year.

Households who took Philip Lowe at his work have suffered mightily.

But the error of the Reserve Bank is not limited to this wrong call back in March 2022. In November, the RBA raised interest rates again – essentially believing that households had not suffered enough and the economy needed to slow more.

Soon after this decision the new Governor of the RBA, Michele Bullock told a conference in Hong Kong that despite all the “noise” from households about the rate rises “households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good.”

A week after she made this statement the national accounts showed that household spending in real terms was flat in the September quarter and that GDP per capita fell for the third quarter in a row.

Clearly, Australian households are not actually in a pretty good position, they are in a pretty poor position, actually! Real household disposable income per capita has now fallen more than 6% in the past year. A big cause of that fall is the increase in interest rates. And yet in November, the RBA thought the fall was not enough! They clearly got it wrong in November, and it is time for the RBA to acknowledge that their efforts raising interest rates have not so much lowered inflation as hurt households.

The RBA got it wrong on its call on interest rates, it was wrong on the cause of inflation – ignoring the research around the world showing the impact of company profits rather than wages – and it was wrong in November to keep hurting households already in great pain.

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