Canberra must make the hard decisions now to control inflation

It Can Be Done

While aggregate money supply is key in creating inflation, expectations have a role to play in prolonging it.

Inflation in services is quite pernicious because it is essentially wage inflation.

Once workers get used to an inflation rate of five, six or seven percent, or even higher, they will start demanding pay rises that more than compensate for them, causing their bosses to increase their charge-out rates in advance to meet their employees' demands.

All the people responsible for this mess will no doubt claim that because of COVID, and the Ukraine War, inflation was inevitable. That is nonsense.

Our inflation rate performance can best be gauged by comparing it to the countries we do most of our trade with.

While the UK, U.S., NZ, and the EU have inflation rates over 6.7 percent as I noted earlier, other trading partners, such as China (0.7 percent), Thailand (1.3 percent), South Korea (three percent), and Japan (3.2 percent) have inflation rates within or close to our RBA target band, while India (4.2 percent) is only just outside it.

Keeping inflation low can be done in the current international environment, and the sooner the federal government starts seriously working on the project, the sooner we can get to lower interest rates.