In this year’s June quarter,the cost of living for working households rose a sharp 1.5%, driven overwhelmingly by higher mortgage payments. This is despite the Reserve Bank suggesting that interest rate rises are “not really” an increase in the cost of living.

Economics and finance is purposefully confusing. Those in the know are pretty happy for you to be ignorant so they can carry on their operation without much fuss. The RBA and a few economists have been rather bemused by the results of an RBA survey showing that 25% of respondents “assessed correctly that higher interest rates would ultimately lead to lower inflation, while more than half indicated that higher interest rates would lead to higher inflation”.

The “correctly” is doing a bit of heavy lifting; more accurately the RBA hopes that higher interest rates will lead to lower inflation – and sometimes not even that.

For example, in May, the governor of the RBA, Michele Bullock told reporters that “these interest rates rises are not going to do anything for inflation in the next six months. That’s done and dusted.”

Instead, she talked of “inflationary pressures” and making sure the oil price shock “does not lead to higher inflation expectations over the longer........

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