NEWS THAT MATTERS
Has Reserve Bank Governor
Philip Lowe got it wrong?
Philip Lowe, aka Dr. Pain, is living up to the pseudonym now bandied around as hardworking families suffer more pain from another mortgage interest rate hike, with the threat of a further increase in December, as the Reserve Bank of Australia (RBA) attempts to put the lid on inflation.
4 November 2022
AS Gold Trip unexpectedly galloped across the finish line to win this year’s Melbourne Cup, and excited punters were celebrating the festive day, families on the Central Coast and across Australia were tightening the penury belt. The RBA has raised interest rates by 0.25 percent, now reaching the heady height of 2.85 percent – from 0.1 percent in May.
And while last Tuesday was race day in Melbourne, it was rate day across the nation – the seventh consecutive rate rise in a bid to slow our skyrocketing inflation (7.3 percent) but it isn’t working. Another difficult day for Australians who are already under the pump. This means Australians with a mortgage will have to find that little bit extra in their monthly budget to accommodate these interest rate rises - and household budgets are already feeling the pinch, with families wondering how they'll put food on the table, let alone pay the mortgage increases.
And what does the latest increase mean to the average family paying off their home? It is about another $50 a month on an average outstanding balance of $330,000. It's about an extra $75 a month for a $500,000 mortgage. But those on higher mortgages will be feeling a lot more pain while Philip Lowe enjoys a Latte and his obscene million dollar a year salary. No ‘Struggle Street’ for him!
Retail sales are up, but economists say that’s because prices are so high, not because we’re buying more. And that’s the whole Reserve Bank theory: higher interest rates make us pinch pennies, and more goods on shelves drive down prices.
In the perfect scenario, in which Philip Lowe and his RBA Board Member cronies dwell, raising interest rates makes borrowing money more expensive. And when borrowing becomes expensive, it can mean less demand for goods and services – like a house, or car. Generally, as the pace of economic activity slows, inflation also slows. But inflation isn’t slowing and is predicted to reach 8 percent by the end of the year.
In early May, the RBA lifted the cash rate for the first time in over 11 years and the banks were quick off the mark to ensure that borrowers felt the sting, as they joyfully listened to the ching ching of the money tree and singing – “ching ching ching goes the money tree, and every time it chings money comes to me, it all flows in so abundantly…”
In May, the RBA Board said that it “is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.” Similar statements have been made by the RBA ever since to justify their failure to rein in inflation.
So, why is inflation on the rise now?
Currently, inflation is on the rise due to several external factors. Most significantly, the impact of global supply chain issues and the Russian invasion of Ukraine, which has caused significant delays in the supply of certain goods, including crude oil.
In its latest release, the ABS listed the following factors as the biggest influencers for higher inflation levels:
Yet despite the increasing inflationary trend people’s wages have not kept up and there’s less and less of the ‘family budget pie’ to slice up and serve to pay for the rising mortgage interest rates, the rising cost of groceries and the escalating fuel prices.
On top of all of those costs, energy supply prices are out of control as energy wholesalers continue to gouge Australian consumers to feed their super profits. The Grapevine reported on 11 October 2022 that Ausgrid, which is now a privatised firm and provides wholesale energy to the Central Coast Region, collected 10.3 per cent of the average energy bill respectively in excess super profits.
And what about the greedy gas supply companies like AGL? Australia is awash with natural gas and coal seam gas, yet the gas companies are more intent on exporting the bulk of the gas supply overseas, without providing a local reserve, at exorbitant prices and expect that Australians should pay world parity pricing for the privilege of buying Australian mined gas.
Not surprisingly, the rising energy prices are blamed on the Ukraine war – the fact that we mine our own coal and gas supply, seams to have escaped those responsible for reining in inflation. The domino effect of our current inflationary trend is a direct result of greed, coupled with the cost of importing petroleum, supply of overseas goods and unprecedented weather events – driving families into penury won’t solve the problem.
Philip Lowe has got it wrong, and if he won’t step down as RBA Governor he should be sacked.
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