In its submissions to the review of the Reserve Bank, set to commence in March, the Australian Council of Social Service (ACOSS) called for no more increases to the cash rate.
ACOSS says that the RBA and the government should establish an employment target as well as inflation, and equally prioritise achieving both.
The rate of unemployment has increased to 3.7%, the highest rate since May 2022, and the RBA expects it to be around 4.5% by June 2024.
ACOSS CEO Cassandra Goldie said the numbers demonstrated the "real and harsh effects of rapidly rising interest rates, with 21,900 people losing their jobs".
"High inflation is a serious challenge and should be addressed, but we need a more nuanced approach that avoids pushing more people onto woefully inadequate income support," Ms Goldie said.
ACOSS believes that the inflation target (between 2 and 3% underlying) should be increased, since the interest rate rises required to reach very low inflation targets are likely to trigger larger increases to unemployment than in the past.
It's by design
RBA Governor Philip Lowe has been steadfast that combatting inflation was the top priority of the RBA, and the hikes were necessary to bring demand down towards target inflation levels.
Inflation is a calculation of too much money chasing too few goods.
During the pandemic, Australians racked up $250 billion in deposits, while Covid led to supply shocks and shortages, as did the war in Ukraine and weather events in Australia.
The end result is that demand is outstripping supply, pushing the prices of goods up; rate hikes are designed to temper demand as the cost of money gets more expensive.
Rate hikes also incentivise more people to save rather then spend.
At the same time, less demand for goods and services also usually means more unemployment, as businesses downsize to compensate for reduced trade.
Money becoming more expensive and the cost of doing business means businesses are less incentivised to employ people.
Dr Lowe reiterated this is short term pain for long term gain in remarks made to a senate committee on Wednesday.
“Before the pandemic, the lowest (unemployment rate) we got to was a bit above 5,” he said.
“We hear the message loud and clearly. And we factor that and we talk about at every board meeting how this is really, really hurting some households.
“But we also talk about if we don't get on top of this, the pain will be worse. It's not a nice message, but that's the reality we face.”
How else can we combat inflation?
For Ms Goldie, the government should be doing more to address inflation from the other side of the equation, those putting their prices up disproportionately to respond to excess demand.
"The government should curb inflation directly with better regulation of exorbitant rent and energy prices and by strengthening the ACCC so that businesses can't take advantage of price rises to lift their profit margins," she said.
The call to halt the rate rises is part of a wider suggestion by the ACOSS to establish a formal unemployment target as well as inflation.
It is also calling for greater diversity on the board of the RBA to include representation for those on low income and those excluded from the labour market.
Need somewhere to store cash and earn interest? The table below features savings accounts with some of the highest interest rates on the market.
Savings Maximiser (<$100k)
Savings Maximiser (<$100k)
|No monthly fees|| |
Picture by Ron Lach on Pexels