THE SQUIZ
The Reserve Bank has lifted the official cash rate by another 0.25% to 4.1%. It was a bit of a surprise to the experts – two-thirds of economists surveyed by Bloomberg predicted no movement this month. It’s the 12th rise since April last year, and the last time Australia saw interest rates this high was April 2012 when Carly Rae Jepsen was top of the pops with Call Me Maybe… More confident about calling things out was our central bank, which flagged further rate rises as new modelling points to borrowers facing the highest housing costs relative to income since the mid-90s.

WHAT’S BEHIND THIS LATEST HIKE?
According to the Reserve Bank, rates had to go up because inflation remains too high as wages growth accelerates and productivity stalls. They’re 3 big factors, so let’s pick them apart… Yesterday, Governor Philip Lowe said inflation needs to come down “within a reasonable timeframe.” The target rate for inflation is 2-3% – and last week, we learned it was at 6.8% over the year to April… Meanwhile, wages growth has picked up. Note: our lowest-paid workers found out last week that they’ll get a 5.75% lift to their pay, which will benefit more than one in 5 Australian workers. And on top of that, productivity growth is down from where it was in years gone by, and there are no signs of it revving up anytime soon. In a nutshell: prices keep going up at a rate that would undermine our future prosperity if allowed to continue. And efforts to get the situation under control have been made harder by wages going up without us producing more to show for it.

SO WHERE IS THIS HEADING?
Good question… The goal is to bring inflation back to within the target range by mid-2025, but there are questions about whether that’s possible given the efforts to date haven’t had the effect policymakers wanted. Cue questions about the government’s role in solving this riddle… Yesterday, the Coalition’s Treasury spokesman Angus Taylor said the recent Federal Budget “did nothing to fight inflation.” But Treasurer Jim Chalmers was quick to defend the government’s actions, saying “our Budget is taking the pressure off inflation, rather than adding to it.” And while he knows there will be “a lot of Australians who find this decision difficult to understand”, he says the Reserve Bank’s got a job to do. To put on your watch list for today: Lowe is giving a speech in Sydney this morning. At 11.30am, we’ll see the latest stats on our economic growth. And you can look at how the latest rate hike affects your mortgage…