RBA's Rate Rise May Be Misguided in Face of Oil Shock Inflation

The Reserve Bank of Australia's decision to raise interest rates for the 15th time in three years has been met with criticism from Chief Economist Greg Jericho, who argues that there is no data to justify such a move.

In August, inflation rose from 3.5% to 4.0%, but this increase was solely due to rising petrol prices. According to Jericho, the RBA's job is not just to notice this sequence of events, but to interpret it and separate external shocks from domestic inflation.

The problem with the RBA's approach, Jericho argues, is that they are treating higher interest rates as inevitable, without considering the consequences of such a move. In fact, a rate rise may even make things worse by draining household purchasing power and delaying investments in alternative energy sources.