Australia’s Economy

I believe Australia is looking to be possibly in a situation of stagflation. Inflation is rising, unemployment is also increasing. The Reserve Bank of Australia (RBA) it has been suggested may have difficulty deciding what to do with interest rates. I disagree that the RBA will have difficulty demonstrating assertiveness and awareness.

The underlying driver to the recent increase in inflation is the Government itself. They are causing inflationary pressure by charging higher fees for servicing and utilities. Prices for staples have not increased to the extent that the size of increase in inflation may typically suggest.

So basically, this upward move in inflation is not necessarily representing an ascending trend but rather a momentary spike predicated by the Government, not the people.

The Government forcing people to pay more for utilities may have an impact on the buying power of the Australian dollar leading to the cost of imports rising, which means the cost of staples may rise, manufacturing and retail (to name a couple of sectors) will suffer therefore further unemployment will ensue.

Remember one very important point as well. Interest rates are not the be all and end all of investment decision making of investors. It is the availability of money that influences peoples borrowing habits and confidence.

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