The government's low-key campaign to influence RBA decisions on interest rates flared into open conflict this week. The Treasurer vented his clearly-rising frustration that the RBA won't just agree the government's economic management has been sound and do what he wants: cut interest rates.

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This challenge to RBA independence should be resisted. Not because the RBA is perfect - it clearly isn't - but because the critics are factually wrong and the alternative policy prescriptions will likely make things worse.

At issue is whether or not the government should curtail its spending plans to assist in the fight against inflation. The government has tried to have its cake and eat it too, insisting that its agenda was boosting growth and raising wages all while bringing inflation down.

While circumstantial evidence seems to be building up in contradiction to these claims, it goes beyond the circumstantial. The government's explanation for the causes and effects of inflation is fundamentally wrong.

In a recent paper, Government Spending and Inflation, economist Robert Carling pointed to the national accounts released by the Australian Bureau of Statistics on Wednesday, noting they confirm the contribution government spending is making to inflation.

The government continues to insist its accounting tricks with power bills and elsewhere mean that it is reducing inflation. However, all this is doing is fudging the measurement of inflation.

This should be self-evident. If giving everyone $1000 to spend would be inflationary - and there are few who would contend otherwise - why would government paying $1000 off everyone's bills suddenly reduce inflation?

Nor should we forget the impact of COVID stimulus.

Massive government transfer payments to the private sector during the pandemic - although temporary - over-compensated........

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