RBA's Inflation Blind Spot: A Disconnect Between Theory and Reality

The Reserve Bank of Australia (RBA) has been criticized for its handling of inflation, which has largely failed to meet the target rate of between 2-3% over the past decade. The RBA's concerns reflect conventional economic wisdom, but this view is at odds with Australians' lived experience.

Recently, a household survey revealed that most people misunderstand the RBA's efforts to fix inflation. While the RBA has been increasing interest rates to combat inflation, many see inflation and interest rates rising together. This disconnect reflects an arcane change to economic data collection in 1998, when the Australian Bureau of Statistics altered the way it measures inflation.

The change was designed to help the public understand the Bank's actions by making the headline CPI reported in the news the same as the information used by the Bank to set interest rates. However, this alteration moved in the opposite direction to real changes in how people accessed housing, exacerbating the gulf between experts and citizens.

Australia's broken housing system is driving a cost-of-living crisis and creating a broader economic policy crisis with worrying political consequences. The insecurity of private rental and financial deregulation are driving insecurity across the system.