Koch Demands RBA Blame Canberra for Inflation Before Rate Hike

Australia's Reserve Bank has been urged to publicly blame Canberra for inflation before potentially hiking interest rates again. David Koch, economic director at Compare The Market, wrote an open letter to RBA Governor Michele Bullock, arguing that government spending is the primary driver of price pressures in the economy.

Koch pointed out that household consumption growth was just 0.4%, with nearly half attributed to families switching to electric and hybrid vehicles to reduce petrol costs. Savings rose 6.5%, business investment contracted, and unemployment climbed to 4.5% in July, the highest level since the pandemic.

Koch contends that the expansion in public spending has been the real engine behind inflation, citing Commonwealth government outlays reaching 26.8% of GDP, the highest share since 1986 when pandemic years are excluded. Public sector wages grew faster than private sector pay, and Koch cited ABS CPI data showing that government-influenced prices for childcare, education, healthcare, utilities, and insurance are rising faster than market-driven prices.

Koch acknowledged the RBA's mandate and difficult conditions but urged Bullock to use her post-meeting statement to explain how much government spending has contributed to inflation. He asked her to consider whether fiscal authorities should sign a joint statement on this matter and what the likely impact on households will be if interest rates rise.