Interest Rates aren’t linked to increased wages – multiple factors, but mostly profiteering are root cause

After twelve increases to the interest rate since May 2022, Australia’s cost-of-living crisis is reaching a boiling point. According to the Reserve Bank of Australia (RBA), whose board sets the rate, these increases are to tackle inflation. However, thanks to landlords and banks who have passed on higher interest rates in the form of rent and mortgage repayment increases, renters and mortgage holders are feeling the impact most. Much of the media — not to mention the RBA — justify this, by arguing that rising wages are a key driver of inflation. But this is contradicted by the RBA’s own research, which forecasts a considerable decline in real wages over the coming years. Indeed, while addressing the impact of the rate rises on living standards, RBA governor Philip Lowe may have conceded that their real rationale has less to do with wages or incomes than the bank would like us to believe. As he explained, “If people can cut back spending, or in some cases find additional hours of work, that would put them back into a positive cash flow position.” Ostensibly, the point of increased interest rates is to cut consumer spending. But if the Reserve Bank’s move encourages workers to work longer hours or find a second job, the implication is that the bank’s more genuine concern is to make workers foot the bill for bringing down inflation. Either way, the situation poses an urgent question for the Left: How can we alleviate the cost-of-living crisis and deal with inflation, without forcing workers and the poor to shoulder the burden? Greedflation The current inflation crisis is in part the result of a series of very specific intersection between different world events. Global supply chains are still recovering from the impact of the pandemic on manufacturing, transport, and distribution networks. At the same time, severe weather events have wiped out crops, disrupting food production and driving up prices on some items. And the ongoing war in Ukraine — as well as and the economic sanctions imposed on Russia — have caused significant disruption in Russian gas exports and Ukrainian grain exports. However, there’s another, more important factor underlying inflation: profiteering. A wide range of companies have chosen to raise the price of their goods substantially above any underlying rise in costs. This can be seen in the fact that these companies’ profits have grown substantially above their growth in turnover, which suggests they have used external factors to conceal price gouging. Economist Isabella Weber has described this as “greedflation.” Indeed, the European Central Bank, the Organization of Economic Cooperation and Development, and International Monetary Fund have flagged excessive profits as a cause of inflation. Despite this, central banks around the world have sought to curb inflation by raising interest rates. Ideally, these measures would put the brakes on some sectors, like the stock market and housing market, without necessarily disrupting the economy overall. However, for most working people, these rate rises are potentially catastrophic, as are their impacts on the economy. Many are being forced to skip meals, default on mortgages or face eviction.