Four rate rises have already squeezed household incomes and slowed demand. Unless underlying inflation jumps unexpectedly this week, another increase risks inflicting unnecessary economic suffering.

Since the beginning of this year the Reserve Bank (RBA) has increased interest rates four times, with its cash rate rising from 3.6 per cent to 4.6 per cent. These increases in official interest rates have been fully passed on to homeowners with a mortgage so that someone with a typical mortgage of $650,000 is now paying an extra $400–420 per month.

Compared to a median wage after tax of approximately $1,425 per week this increase in interest rates has resulted in a very substantial reduction of around 7½ per cent so far this year in the typical mortgagee household’s disposable income. This is a very substantial hit to living standards and no wonder people’s biggest concern is the cost of living.

Until the last week or so, most private sector economists and financial markets widely expected that there would be no further interest rate increases, at least for the time being.

However, a question-and-answer session with the deputy governor of the RBA, Andrew Hauser, last week has shifted opinion on whether the RBA will lift its cash rate again on Melbourne Cup Day next week. Before Hauser’s intervention, financial markets were pricing in the chance of a hold in interest rates at 81.5 per cent, but now they are pricing in the chances of an increase at 50–50 or even a bit stronger.

Hauser points to........

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