Australia's Central Bank Hostage to Old Thinking on Interest Rates

The Reserve Bank of Australia (RBA) is expected to raise interest rates for the fifth time this year, despite slowing wage growth and rising unemployment.

According to market expectations, the RBA will increase the cash rate to 4.6%, the highest level since November 2011. This decision has been largely driven by the assumption that higher rates are necessary to combat inflation, which has been above the target range of 2-3% for several months.

However, some experts have questioned this approach, pointing out that wages growth has slowed and unemployment is rising, which could indicate a more subdued economy. Dr. Iain Ross AO, a member of the RBA's Monetary Policy Board, stated in a recent speech that there is 'no evidence of the emergence of a wage-price spiral' in Australia.

The decision to raise rates comes as oil prices have risen by 20% since the last RBA meeting, and petrol prices have increased by an average of 34c/l. This has led to higher interest rates being demanded by institutions for lending purposes.