Saul Eslake

And the policy response to that is pretty obvious.

It is to raise interest rates, or if the government wants to share some of that burden, increase taxes and or cut government spending.

with a view to reducing aggregate demand so that it comes into line with aggregate supply and removes the source of upward pressure on inflation.

But a supply shock pushes up inflation, but also pushes economic growth and demand potentially down by raising the costs of doing business and by reducing people's and businesses' spending power.

The third of Australian households who have a mortgage, and in particular, the roughly quarter of Australian households who have a big mortgage, have to spend more out of their incomes servicing their mortgages.

Central banks, including our own, they'll have to make a judgment about whether they need to do something if the oil price gets up to $100 a barrel and stays there for an extended period of time.

Yes, it is.

And consumer confidence has taken a hit already from the reversal in the direction of interest rates.

I'm looking, as we're speaking now, at the Westpac Melbourne Institute Index of Consumer Sentiment.

During 2005, that rose quite strongly.

to in November 2005, its highest level since we were coming out of COVID at the end of 2021.

But over the following three months, it has fallen back

to where it was at the end of 2024.

And that says of February, almost certainly consumer confidence will have taken another hit from the sharp rising petrol prices that's occurred over the last seven days.

We'll actually get an update of the consumer confidence measure from Westpac, I think on Tuesday of this coming week.

And as I say, I wouldn't be surprised if that's taken a further hit.

And month by month movements in consumer confidence don't necessarily tell you a lot about what's going to happen to retail sales and other measures of economic activity.

A big sustained drop in consumer confidence almost always tells you something about what households are going to do.

Thank you.

It's been a pleasure and I hope we can do it again sometime.