• 4 months ago
The Reserve Bank will be closely monitoring inflation figures due later this month as it continues its efforts to bring prices down. Higher interest rates are intended to slow inflation by making borrowing more expensive and thereby curbing spending. However, as Alan Kohler explains, some spending isn't a matter of choice at all.

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00:00Inflation has come down by half, but nobody seems to appreciate it except economists and
00:07graph jockeys like me. I think there are a couple of reasons for that. First, inflation
00:13has fallen, but prices have not. Falling inflation simply means that the pace of price rises
00:19is less than it was, which is small comfort if your income still isn't keeping up. Second,
00:24the prices of essentials went up more than discretionary items and are still rising more.
00:29And one essential in particular is killing us – insurance. Now that's largely caused
00:35by climate change affecting housing insurance, so it's not temporary. And there's nothing
00:40more essential than rent, which has been rising at between 8 and 10 per cent a year for three
00:46years. Now rents took off in the pandemic, but Airbnb kept them there by choking off
00:52supply. You might be thinking, yeah, but the number of short-term rentals has come down
00:56since the pandemic. Sure, but it's still 170,000. And on REA this week, the number
01:02of properties in Australia up for long-term rent was less than a third of that – 61,866.
01:10That's a huge imbalance. Now a group called Grounded has researched short and long-term
01:14rentals in 13 locations around Australia and found that landlords are getting 81 per cent
01:19more for short-term rental. So the pressure on rents won't be temporary either. Rent
01:25and insurance are the main reasons inflation is still a bit too high despite 13 rate hikes
01:31to the discomfort of the Reserve Bank. But neither of them can be controlled by higher
01:37interest rates. In fact, if interest rates do go up again this year, all that'll happen
01:42is that the prices of rent and insurance will keep going up, but so will the price of that
01:47other non-discretionary item – borrowing money.
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