RBA Blamed for Ignoring Government Spending's Role in Inflation

David Koch, economic director of Compare the Market, has written an open letter to Reserve Bank of Australia governor Michele Bullock, blaming government spending for a looming interest rate rise. In his letter, Koch argues that household spending is not driving inflation and that a meaningful slice of the problem lies in the cabinet room.

Koch points out that federal government spending has climbed to 26.8% of GDP, with much of it going towards categories such as childcare, education, healthcare, utilities, and insurance. He also highlights that fuel prices are already a tax on households and that a rate rise will simply hit the same kitchen table twice.

Koch is urging the RBA to be more vocal about where the need for the latest looming rate rise comes from and to explain how government spending is contributing to inflation. He wants the board to use plain speech, backed by numbers, to detail the impact of government spending on mortgages and contrast it with a counterfactual cash rate.