- Inflation, not housing, is by far the top economic concern of Australians
- The finding comes from a Reserve Bank of Australia survey
- It also found only a quarter of respondents were clear on how raising interest rates can help lower inflation
Almost two-thirds of Australians said inflation was their top economic concern, beating out housing and interest rates.
The finding emerged from the Reserve Bank of Australia's third survey into the public's economic perceptions and supports the results of the previous two, commenced in early 2025.
Inflation was the number one concern across all demographics but was particularly pronounced among lower-income households who are more vulnerable to its effects, the survey report found.
But not all survey respondents were clear on the role of interest rates in keeping inflation under control.
Economic literacy mixed
The survey also gauged public understanding of the RBA and how monetary policy works.
Around half of respondents correctly believed higher interest rates are expected to slow economic activity and jobs, with around 30% incorrectly judging it would boost them.
The remainder were unsure.
However, only 25% of those surveyed understood that higher interest rates would ultimately lead to lower inflation.
More than half incorrectly believed higher interest rates would lead to higher inflation.
The survey found basic economic literacy was best among high income earners, males and older Australians, while lower income earners, women, and younger people typically scored lower.
How do higher interest rates lead to lower inflation?
In simple terms, higher interest rates reduce inflation by suppressing consumer spending.
For households with a mortgage, when interest rates go up, more of household income must be directed towards home loan repayments, curtailing spending in other areas.
This reduction in demand makes it harder for businesses to keep raising prices as more people judge they can't afford them, helping to slow inflation.
Higher interest rates also affect other areas of the economy but the report authors expressed concern the lack of basic understanding can contribute to community frustration with the RBA's monetary policy decisions.
In recent times, this hasn't been helped by political pressure on the RBA to lower interest rates, particularly in the lead up to the 2025 election.
What do the public know about the RBA?
Despite this, the survey found public trust in the RBA was in the moderate to high range, consistent with earlier surveys.
Awareness of the RBA was very high and that the majority of respondents understood its job to set the cash rate.
More than half also correctly identified the current inflation target range is between 2% and 3%.
But only a quarter were aware of the RBA's objective to maintain full employment, a historic role reframed as a 'dual mandate' in 2023 alongside price stability.
The latest survey of 9,000 people was carried out in late February/early March, after the first cash rate increase of 2026 but before the ongoing conflict in the Middle East added fuel to inflationary pressures.
RBA back in the spotlight
The RBA's monetary policy board is set to deliver its next cash rate decision on 11 August.
Next week's quarterly Consumer Price Index data will be key to whether the rate will increase from its current 4.35%.
But it will be considered alongside Thursday's jobs data for June which delivered an unexpected shock to markets.
While Australia's unemployment rate remained steady at 4.4% last month, an extra 76,300 jobs were created nationally, far exceeding market expectations.
Simply put, a resilient jobs market puts more money in people's pockets and can also lead to higher wages amid competition for labour in the market, feeding inflationary pressures.
The jobs figures are expected to increase the odds of an August cash rate hike which markets were previously pricing in at a 19% chance.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
