Higher fuel prices make a compelling argument for the RBA to lift rates again next month, but the risks of it setting a foot wrong when it comes to policy are high to extreme, writes business editor Ian Verrender.
With barely a fortnight to go before the Melbourne Cup interest rate decision, there's a growing body of thought that higher fuel prices could tip the balance within the Reserve Bank's Martin Place boardroom for another rise.
The conventional logic goes something like this: Higher fuel prices feed directly into almost everything that is produced, from tradeable goods to services. That will push up prices and reignite community fears that inflation is here to stay, sparking calls for higher wages. The RBA, and most other central banks, will have little option but to jack up rates even further, to wind back demand, in order to tame inflation.
COVID-19, the chaotic pandemic recovery and Russia's invasion of Ukraine along with a vicious and largely unexpected return of inflation have sent Central Banks globally into a spin. Australia has the highest level of mortgage stress in the world, according to the IMF's Global Financial Stability Report.That's only going to get worse as more households suddenly switch from fixed mortgage rates around 2 per cent to 7 per cent as the roll-off onto variable loans accelerates.
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