Australians Misunderstand Link Between Inflation, Interest Rates

A new survey by the Reserve Bank of Australia has found that most Australians do not accurately understand the relationship between inflation and interest rates.

The survey, which was conducted in July 2026, showed that many people believe that rate rises have little to no impact on living costs. However, data suggests that this is not the case.

Greg Jericho, Chief Economist at the Australia Institute, went back to basics in a recent episode of the Dollars & Sense podcast to explain how inflation and interest rates interact.

Inflation refers to the rate at which prices for goods and services are rising. Interest rates, on the other hand, determine the cost of borrowing money. When interest rates rise, it can become more expensive for people to take out loans or credit cards, which can in turn reduce their spending power and contribute to higher inflation.

The Reserve Bank of Australia has stated that rate rises do not directly increase living costs, but data suggests otherwise. A recent article by Greg Jericho in the Guardian Australia found that the RBA's claim is at odds with the data, which shows that rate rises do indeed have an impact on living costs.