Straight Talk: Economic Round-Up Blow By Blow

The Reserve Bank says inflation will be worse than almost everyone expected.

Equity prices plummet. The Aussie dollar rises. Respected economists run round like headless chooks squawking "more rate hikes to come!"

Financial markets dramatically mark up the chances that the next rate hike will be in March. Businesses plan their price hikes. Unions think harder about how to protect the bruvvers and sisters.

Ordinary people - whose inflation expectations were already elevated - grimly recalibrate their household budgets.

The government says all this was the Liberal Party's fault. John Howard hits the international speaking circuit. Peter Costello leaves for a supposedly lucrative overseas job. Malcolm Turnbull flips between saying "look what Labor has already delivered" and "there is no problem, inflation is still in the target band".

What about the blame that should be sheeted home to the Reserve itself? It is the agency with formal responsibility for controlling inflation, a responsibility that, after initial scepticism by its then leader, it embraced warmly.It is the organisation that after a long intellectual struggle was given by financial deregulation, including the flexible exchange rate, the technical ability to control inflation. It is the mob that was given salaries sufficient to attract and retain what it saw as the "best and brightest" of Australia's economists.

To read more from Henry Thornton, simply click on the link.

Rate Rise the Cost of Australia's Economic Success?

The latest rate hike is ultimately to keep inflation incheck, and what one might just describe as the cost of Australia's great economic success.

Therefore, additional rate hikes will almost certainly be needed. The only way to avoid a series of rate hikes is for the incoming government to aggressively trim its spending programs.

Whilst this should be the immediate priority for the new government, regardless of whether it's in Coalition or Labor colours, moderate spending promises are more likely during the final stages of the election campaign. Simon Turner