Economists are looking for other ways of braking inflation. But the impact of interest rates on housing costs is still the most reliable means.
Already a subscriber?The latest data from the Australian Bureau of Statistics revealed a 1 per cent increase in prices during the March quarter, pushing the annual inflation rate to 3.6 per cent. Economists had anticipated a milder 0.8 per cent increase for the quarter and a 3.5 per cent annual inflation rate.
Various alternatives have been suggested, such as implementing fiscal policies like tax hikes or trimming government spending, alongside supply-side approaches such as deregulation, investing in infrastructure and encouraging business growth to boost production capacity.We argue that interest rates are still the most effective tool for managing inflation.
Advocates for alternative tools suggest options such as increasing the rate of the goods and services tax or raising employees’ compulsory superannuation contributions. While it could be argued these alternatives might be effective in controlling demand through changing the spending decisions of households and businesses , they are not immune to the same criticisms levelled at interest rates.
For instance, raising the GST or increasing the superannuation levy would require parliamentary approval and this might take a long time and risks being blocked if there was a political advantage from doing so.: so that it can make unpopular decisions.
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