Posted by: Spacehamster74 | 02/02/2010

There’s more to the economy than a Homeowner’s Mortgage

I'm definitely not an Economics expert like Michael Pascoe. However, it was Michael Pascoe that raised this point in his article – just why aren't the RBA raising rates when the economy is supposed to be doing well?

I'll let Mr. Pascoe explain –

According to his good self, the labor market is strong and
unemployment has peaked, there’s an upturn in housing construction,
public infrastructure is boosting demand, money is cheaper than normal
and household net worth is recovering, that is, house and share prices
are on the up and up.

Indeed, “credit for housing has been expanding at a solid
pace and dwelling prices have risen significantly over the past year,”
says Stevens.

There’s a rather bald statement that the RBA thinks
inflation will be “consistent with the target” this year, which would
mean an underlying inflation rate of between 2 and 3 per cent, but
there’s no justification for that hope that inflation is falling. To the
contrary, the governor says: “CPI inflation has risen somewhat recently
as temporary factors that had been holding it down are now abating.”

The RBA raises rates to stem rising inflation. Inflation comes from rising house prices and a strong labor market. The explanation that the RBA doesn't have to raise interest rates because the banks already have just doesn't ring true. There's more to the economy than just a homeowner's mortgage.

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