In the past week, the likelihood of the Reserve Bank raising the cash rate to 4.35% has gone from about 20% prior to last week’s inflation figures coming out, to now an even-money bet.

But when you look at the cost of living figures out this week it is clear that households are already having to reduce their spending on non-discretionary items.

Out of the 14 biggest contributors to inflation, 10 were non-discretionary items.

At this point we should note the comments of the secretary of the Treasury, Steven Kennedy, last week in Senate estimates. He was asked about the pathway to a “soft landing” – ie where inflation falls without us going into a recession.

He noted that chances of a soft landing were made harder by recent rises in oil prices because “on the one hand, it will increase headline inflation by raising petrol prices. On the other hand, it may well reduce growth and see other prices fall because people have less to spend. At least in the short term, expenditure on petrol is not very discretionary.”

When the prices of things you can’t avoid paying for rise faster than others, then that obviously reduces your ability to spend elsewhere. In this way petrol, electricity and rental price rises have the same impact as do interest rate rises.

The most recent figures of the volume of retail spending will come out tomorrow, but we know that the volume has been falling, and is now back to pre-pandemic trend levels:

This of course is what you would expect – when the cost of non-retail items such as petrol, mortgages, rents, electricity, property rates, medical services and insurance are rising, you are going to buy less in the shops.

Since March last year the cost of mortgages has gone up 114%. Does the Reserve Bank think households haven’t really noticed that?

Even you if discount the record low rates during the pandemic, the cost of mortgages is now about 70% higher than it was at the end of 2019. Since then, wages have risen only about 10.5%.

Another rate rise is not going to do anything other than add to the cost of necessities. It would not so much reduce inflation as increase the cost of living and hit households whose wages and incomes continue to be worth less than they were a year ago.