RBA raises rates to fight inflation

The Reserve Bank of Australia lifted its cash rate on Tuesday, with more rises planned, saying it needs to combat inflation driven by petrol prices and gas bills.

War, not demand, is driving prices up

Economist Yanis Varoufakis says the inflation spike comes from the Gulf war, not from households spending too much. Since US and Israeli bombs fell on Iran, the strait of Hormuz became a toll booth.

Shipping costs tripled, tankers rerouted

Shipping insurers tripled their premiums after the strait of Hormuz disruption. Tankers were diverted around the Horn of Africa. Energy companies made exorbitant profits while most Australians felt the pain.

Two types of inflation, one solution

Varoufakis says central bankers ignore cost-push inflation, caused by external shocks like war or drought. Raising rates only works for demand-pull inflation when people spend more than the economy produces.

Rate rise won't solve the real problem

No rise in the cash rate will open the strait of Hormuz or lower oil prices. It will only suppress Australian spending, wages and investment, like treating a broken leg by amputating the healthy one.

“No rise in the cash rate will open up the strait of Hormuz … or compel a barrel of Brent crude to come down because a Melbourne mortgage holder is stressed.”

Foreign gas firms profit, pay no tax

Australia exports roughly four-fifths of its liquefied natural gas through foreign-owned companies who sell it back at volatile global prices. The Australia Institute shows they pay next to no tax.

Australians pay twice for the war

Australians absorb the energy shock twice: first as resource owners receiving no windfall, second as borrowers paying higher mortgage premiums that never caused the price spike in the first place.

Rate rise becomes excuse for cuts

Higher rates increase the government's debt-servicing bill and shrink tax revenue. Those seeking to cut Medicare bulk-billing, aged care and the national disability insurance scheme are already using this as proof spending restraint is unavoidable.

Same script, different crisis alibi

Varoufakis has seen this pattern before: in Britain after 2008, across the eurozone after 2009, in Australia in 2014. Each time, a crisis becomes the excuse to cut social protections the majority did not cause.

Alternative: caps and levies, not rates

Instead of raising rates, Varoufakis proposes export caps to create strategic reserves, price caps and a windfall levy on gas companies to fund targeted relief for squeezed households and small businesses.

Labor faces One Nation backlash

Varoufakis warns that if the Labor government cannot see the problem with raising rates to fight a war it is not fighting, it stands no chance against One Nation surging on mounting discontent.