25-30 years ago that was understood. Now, probably because as a nation we have a debt obsession, the focus is entirely on the 'mortgage stress' side of the coin. And that's why we keep hearing this flawed argument that the RBA is trying to dampen spending by penalising only 30%.
The current CPI rate was set as a target for the RBA in 1993. Prior to this there was an understanding that they aim for around this but the rate was not set in concrete.
The current charter of the RBA is:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia."
It appears clear to me that these three aims cannot be acheived, in fact the aims of one are counter productive to the other.
By maintaining a high Australian currency, you encourage imports while making Australian goods harder to export. This is likely to increase the national debt as Australians demand more imported goods.
Full employment means that the economy is performing at maximum demand, this leads to pressure on wages as employees realise their value. Wage demands lead to inflation.
The RBA's response to increased inflation is to increase interest rates. Interest rate increases affect the ability of industry to invest and grow, and makes people tighten their belt. The lack of investment and spending leads to job losses and recession.
The RBA then adjusts the rates to stimulate the economy and the whole cycle starts again.
In prior decades government fiscal policy played a major part as an economic control. Prior to GST governments adjusted tax rates not only on wages but also on spending, sales tax was levied on items at varying rates with staples being taxed the lowest and luxury items being taxed at higher rates.
Modern fiscal policy appears to be driven more by giving money away, rather than by what is best for the country. Vote winning strategies that are dressed up as entitlements (money for bugger all).
The FHOG was a great idea to stimulate the market following the Sydney Olympics, but it should have been discontinued once it had done it's job. Instead it was kept on and the result was upward pressure on home prices, the grant has been devalued and does not cover the increased costs it stimulated.
The baby bonus is another of these white elephants, established to stimulate baby production it is not big enough to tempt those who earn a full time wage, instead it stimulates production in areas where the result is likely to be just more people "entitled" to benefits.
Unemployment benefits for people who just don't want to work, rent assistance when there is no accountability for it to be paid to the landlord... the list goes on and on.
Many of my tenants receive these payments, they have all the mod cons, and are barely effected by an increase in interest rates. In fact the sustained value of the dollar will mean that the extra interest rate on their credit card is outweighed by the relatively cheap cost of the imported good. There is also the very likely chance that their entitlements will be adjusted to compensate them for any increase in the cost of living.
I have said it before and I will say it again. Increasing interest rates is not the only way to control the economy, and for many years it was not the preferred method of doing so, it has become the method be default. As consecutive governments choose to be bringers of only good tidings and leave the dirty work to the RBA.
Regards
Andrew