Dr Richard Denniss

We used to say 2% to 3%, but we had a review into the RBA and they were like, no, no, we should aim for the middle of the range.

So they've got this very precise target now for inflation.

They want it to be 2.5%.

And they've got one lever to pull, really, interest rates.

So, you know, to a man with a hammer, the world is a nail, and to an RBA with one interest rate leaving a pool, that's what they pull.

Now, you know, what's interesting is the RBA Act, the Act of Parliament that establishes the RBA, says full employment should be its goal.

Like, I'm not making this up.

It's hidden on this top secret thing called the internet.

It's written into the founding legislation of the Reserve Bank of Australia, and full employment is in there as one of the goals.

But everyone knows, and I've got scare quotes going for knows, that actually while the Act might say full employment, what they know is that 2.5% inflation is the real goal.

We've already seen expectations for inflation over the next year or so increase, and we need to ensure that this does not lead to higher inflation expectations over the longer term.

Yeah.

So inflationary expectations is a sort of fancy word economists use to describe what people think might happen in the future.

So let's say you and I were signing a contract for my wage or your wage or, I don't know, the price of beans.

If you and I both thought that the price of everything was going to rise 10% in the next year, well, one of us would be pretty dumb to sign a contract today that didn't anticipate what's going to happen, right?

So if I think that prices of rent are going to go up, if I think prices of labor are going to go up, I think prices of beans are going to go up.

well, if I have to write a contract today about what price I'll sell you some beans in a year, I'm going to price in today all the things I expect to happen.

So inflationary expectations is this kind of bit of psychobabble, really.

It's, you know, I wonder what the people are thinking.

Are the people thinking inflation will go up a lot?