The key points are:
The RBA hiked its cash rate for the third time this year by another 0.25% to 4.35% in response to inflation running above target and concerns that it will likely remain so for longer given price pressures partly flowing from the War with Iran, threatening higher inflation expectations.
The key lesson from the 1970s is that the RBA is right to be focussing first on getting inflation back to target – as it will avoid even more pain down the track.
We are allowing for a further rate hike in August, but the longer the Strait of Hormuz remains blocked the greater the risk of recession allowing a return to rate cuts next year.
The best things the Government can do in the Budget to help alleviate underlying inflation pressures is to lower the level of public spending and boost productivity.