A Melbourne Cup Day rate rise would not be tough on inflation, it would just be cruel

‘The problem for the RBA – and those who think it should raise interest rates – is that when we look at the main drivers of inflation, such as petrol prices, there is not much that interest rates will affect.’ Photograph: Xinhua/Shutterstock

In the past year inflation grew 5.4%, down from 6% in the June quarter and almost a third below the peak of 7.8% at the end of last year. And yet commentators seem desperate for the Reserve Bank of Australia to raise interest rates next month to show it is tough on inflation. But raising rates now would not be tough, it would just be cruel.

There is rather a mania among the economic class in Australia for high interest rates. On Wednesday the Australian Bureau of Statistics released the latest CPI figures and the annual growth – which is what the Reserve Bank targets – fell significantly from the June quarter to 5.4%. That is the lowest it has been since June last year and shows a nice path back to the RBA’s target of 3%: