RBA's Interest Rate Hikes Hit Australians' Wallets Hard

The Reserve Bank of Australia (RBA) has been saying that interest rate rises do not increase living costs. However, recent data suggests otherwise.

In the June quarter, the cost of living for working households rose by a sharp 1.5%, mainly driven by higher mortgage payments. This is in contrast to the RBA's claim that rate hikes are 'not really' an increase in living costs.

RBA Governor Michele Bullock told reporters in May that interest rate rises would not do anything to reduce inflation in the short term. However, she later said that rising rates aim to make sure oil price shocks do not lead to higher inflation expectations over the longer term.

The RBA's stance on interest rate hikes has been confusing, and people are starting to wonder if they can be trusted. The data shows that cost of living has increased more than the official inflation rate in recent months, with mortgages being a major contributor.

It's worth noting that the RBA changed the way it measures cost of living back in 1998 by removing mortgage repayments from the consumer price index (CPI). This means that when interest rates rise, as they did in the June quarter, the two measures are rather different. In this case, about 70% of the increase in cost of living for employee households was due to higher mortgages.