Firstly i would like to say i am your new lord and master. if you need anything feel free to PM me and i will deal with it. Not intrested in censering the forum but as this is for B and E and not religion or some other forums i wont tolerate people getting out of hand. Any personal insults will be deleted and i will ban anyone who does it more than once, there is no reason for it here.
So anyway high and now onto the real point of the thread



This has been bugging me for a long time but seems to be ignored

In Australia (not sure about other nations) intrest rates are set by the reserve bank. There main indicator is the CPI (consumer price index), this is made up of all the prices of products sold in Aust as measured by the ABS
Ok the maths is a little bit more complicated than that (if anyone needs the maths i will give it to you) but it doesnt really effect this

Now at the moment the main things increasing in rent are petrol and rent

As petrol goes up so do food prices ect because of the cost to produce and transport them

Rents are going up as morgage rates go up because the reserve bank puts up intrest rates

Now my question is WHY???

whats the point and isnt it counter productive in this enviroment

let me give an example

As intrest rates rise so do rents which cuts the budget and makes people more likly to ask for a higher pay rise

As food prices go up the same thing will happen because both of these are basic needs that cant be done without.

So wouldnt the reserve bank actually be putting MORE pressure on intrest rates rather than aleviating it

Congratulations - you've just discovered the basic principle of inflation: the wage/price spiral.

But there are other factors involved in controlling inflation besides just cutting interest rates - like employment, warehoused merchandise/equipment, consumer spending, etc. Sometimes it helps to lower interest rates, sometimes it hurts the economy - and that's why most countries have an agency who's job it it to balance ALL the factors involved and make those tough decisions.

I once heard from a teacher that the agency's job is not to prevent inflation, but to prevent hyperinflation or hyperdeflation.

Another important considertion is that as labour costs rise exports will suffer at some point. This can lead to unemployment which would mean that home demand would suffer as purchasing power drops ,thus further weakening the economy.

My limited understanding of economics suggests that the whole thing is a can of worms. In the UK interests rates are controlled by the Bank of England as opposed to government. This change was introduced some years ago and , on the whole, it has been effective. When politicians are in control interest rates tend to be more erratic.If an interest rate rise were indicated in the run-up to a general election, the party in power would be motivated to postpone it rather than jepoardize their chances of being re-elected.

In Australia (not sure about other nations) interest rates are set by the reserve bank. Their main indicator is the CPI (consumer price index)...
What do you mean by 'indicator'?

Do you mean the interest rate is determined according to the CPI.

I would think the primary determining factor is the rate of change in the GDP.

Yes i mean its determined by the CPI, doesnt matter how much of the GDP we send overseas only matters about conditions at home. I belive the others are the jobless rate and the BPI (i think thats what its called) but my point was that YES the CPI shows that inflation is above 3% the target the goverment has set the reserve bank. The problem is that CPI increase is because of essential items, food, fuel, rents which people wont just do without. So what is the point of putting up intrest rates (we are up 8 rises in a row you realise). Im not saying they should cut rates but i cant see the point in putting them up either, if its not going to help why do it.

My other problem with the reserve bank its everyone on the board EXCEPT the secretry of the tresury (the only public servent) is a busness man. There is not one academic, trade union member or social justic person on the board. Yet these changes have a bigger impact at the bottom of sociaty than at the top.

My other problem with the reserve bank its everyone on the board EXCEPT the secretry of the tresury (the only public servent) is a busness man. There is not one academic, trade union member or social justic person on the board. Yet these changes have a bigger impact at the bottom of sociaty than at the top.
In the States the governors of the Fed are appointed by the president and have to be approved by Congress. They can also be removed...for cause. The current chairman is a lifetime macro economics professor.

How are the central bank directors chosen in Aus?

I will find out but in the mean time there are 3 (I THINK) treaure apointments only. As i said the secretry of tresury is on the board automatically (that is not a secretry in the US sence, its the most senior beurocrat in treasury Not a politision). The rest i dont know how they get there.

I will endevior to find out

my point was that YES the CPI shows that inflation is above 3% the target the goverment has set the reserve bank.
Historically most inflation is really devaluation created by the government printing money that doesnt really exist. Its a way of extracting money from the total economy without having to raise taxes or cut spending. As long as its kept under 3% hardly anyone notices enough to complain.

The other big cause of inflation is rising energy prices, which affect the price of everything because everything requires energy...even a head of lettuce at the supermarket.

The goverment here has set the reserve bank a target of under 3% inflation. Its currently running at 3.6% (i think) underlying inflation the last i herd. Therefor under there guidelines they have to increase intrest rates to curb it BUT its not working. We have had 8 rises in a row and the econermy is STILL at above 3%. I just dont see the point of putting MORE strain on the low income earners when they are getting no result because its the items you cant do without that keep going up

Some background on australia incase you didnt know

Not only are petrol prices at $1.50 a liter we are also in the middle of the worst drought EVER. So its no wonder food prices keep rising, there isnt enough food here. Yet people still need to BUY food so they are going to ask for a pay increase to cover it so then the reserve bank gets its wage figures and surprise surprise they are up.

Not only are petrol prices at $1.50 a liter we are also in the middle of the worst drought EVER. So its no wonder food prices keep rising, there isnt enough food here. Yet people still need to BUY food so they are going to ask for a pay increase to cover it so then the reserve bank gets its wage figures and surprise surprise they are up.
There may be some exceptions, but generally the central bank can only fix problems it has created.

If you have a rising values due to a shortage of oil or water, manipulating the interest rates wont solve it.

The central bank only controls the supply of money, not the actual value of commodities.

Ok if thats the case then why have we had 8 interest rate rises in a row? If the problems cant be solved by Macroeconomics then whats the point?? Is it just so that politisions can say "see they are doing there job" while wages go up as people cant aford food and housing?

BTW, is Australian more or less always on the verge of drought. Most of the continent is desert right?

Umm not always. At the moment we are in the worst drought for 1000 years but no i dont think this is always the case.

Yes the center of Australia is a desert but thats not the main farming land which is situated around the coast where there IS water, well normally anyway

Ok if thats the case then why have we had 8 interest rate rises in a row? If the problems cant be solved by Macroeconomics then whats the point?? Is it just so that politisions can say "see they are doing there job" while wages go up as people cant aford food and housing?
Interest rates have to stay well above the inflation rate, or the banks and investors loose money. Inflation is a devaluation of your dollar. Investors put money into banks to make a profit on their investment. The interest they draw on the investment must be greater than the inflation rate, or they will invest their money somewhere else rather than loose real value in your Australian banks. The banks must loan out the money at a higher interest rate than they pay depositors to cover their operating costs, defaults, and their own profits. In other words, the main focus of the central banks is to keep the money flowing, not the rising costs the poor consumer must pay for his living costs. The central banks won't lower interest rates until, like in the US, there begins an increasing default rate by stressed consumers that can no longer afford to pay back their loans (especially those variable-rate mortgages and credit cards) and also pay much higher prices for food, energy, etc.