The Reserve Bank has just made a huge mistake – and you’re being punished for it: What they need to do before it’s too late
Interest rate hikes hitting mortgage holders may be based on flawed inflation data, with a leading international economist accusing the Reserve Bank of Australia of misreading the true cause of rising prices.
Canadian labour economist Jim Stanford said Australia’s economic conditions do not justify further rate hikes, arguing the Reserve Bank is repeating mistakes made during the first wave of post-pandemic inflation by relying too heavily on higher interest rates.
During the initial surge in post-pandemic inflation, the RBA largely ignored the role of rising corporate profits, Mr Stanford said.
‘Companies in concentrated or strategic sectors like energy, food, construction, logistics and some manufacturing took advantage of supply disruptions during lockdowns to extract unprecedented and deeply unfair profits.’
He said corporate profits rose to their highest share of the economy on record, reaching more than 30 per cent of GDP.
‘Instead of taking action to limit that profit-led inflation, policy-makers in government and at the RBA punished the victims, with 13 rate hikes.
‘The one-sided and class-blind approach followed by the RBA in the post-pandemic period caused considerable harm to the well-being of workers, households, and government finances.
‘That harm has not yet been repaired, even as the RBA embarks on another tightening cycle.’
Canadian labour economist Jim Stanford says the Reserve Bank misread Australia’s inflation surge, warning interest rate hikes are punishing mortgage holders for price pressures driven by supply shortages rather than an overheating economy
He argues millions of Australians facing higher mortgage repayments are being hit by rate rises based on misleading inflation data, not excessive spending or wage growth
Inflation surged to 3.8 per cent in December 2025, prompting the RBA to lift the cash rate to 3.85 per cent in February, one of the highest policy rates among major advanced economies.
But Mr Stanford said the central bank reacted too quickly to what he described as a misleading spike driven largely by seasonal holiday travel costs rather than broad inflation pressures.
Australia’s economy expanded by just two per cent last year, employment growth slowed to one per cent and unemployment climbed above four per cent, conditions he said do not support claims the economy is running ‘too hot’.
The economist said the RBA placed too much weight on the Australian Bureau of Statistics’ new monthly inflation indicator, introduced only months earlier.
The measure jumped from 3.4 per cent to 3.8 per cent in December, but Mr Stanford said the data was highly volatile and lacked sufficient historical depth for reliable seasonal adjustment.
Among the ABS’s 87 spending categories, he said just two, domestic and international holiday travel, accounted for 97 per cent of the entire monthly increase.
Domestic holiday prices rose eight per cent in a single month, while international travel costs surged 24 per cent during the peak summer season.
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He accused the RBA of repeating post-pandemic policy mistakes, claiming corporate profits and supply constraints, not workers, were the real drivers of inflation.
‘Those prices reflected peak demand during the December holiday travel season; they will certainly retreat after the summer,’ he said.
Without those increases, Mr Stanford calculated inflation would have risen only 0.003 per cent for the month and annual inflation would have fallen to 2.8 per cent rather than appearing to accelerate.
‘This is a shockingly narrow and fragile basis on which to hammer the national economy with renewed rate hikes,’ he said.
‘The fact that the whole Australian economy will now be punished because of temporary spikes in the cost of holidays is both bizarre and infuriating.’
Mr Stanford dismissed claims frequently made by business groups and conservative commentators that wage growth or government spending were driving inflation.
Real wages remain about four per cent below pre-pandemic levels after workers experienced one of the sharpest declines in living standards in decades, he said.
‘It is mathematically impossible to blame wages for the acceleration in inflation,’ he argued.
He also rejected claims that public spending was overheating the economy, saying government consumption grew at roughly the same pace as household spending while private investment expanded faster.
As interest rates climb, economist Jim Stanford says electricity, food and housing costs are rising due to structural supply problems that higher borrowing costs cannot fix
Instead, Mr Stanford said many of the fastest-rising prices were linked to supply constraints largely unaffected by interest rate rises.
He pointed to electricity, food, child care and housing as key examples of inflation pressures that monetary policy could do little to influence.
Electricity prices were the fastest-growing component of the consumer price index last year, rising 21.5 per cent.
Mr Stanford said power costs remained elevated despite falling generation costs driven by the rapid expansion of low-cost solar and wind energy.
‘High interest rates will have no predictable impact on power prices. Instead of papering over the failure of marketized electricity with government subsidies, government should rethink the entire model, and deliver publicly-produced power at cost to Australian consumers,’ he said.
Food prices were another major contributor to inflation that he said was largely unaffected by higher borrowing costs.
‘People have to eat, no matter the state of the macroeconomy,’ Mr Stanford said.
He said rising food costs were driven by climate disruptions, global supply pressures and international trade dynamics, pointing to global price spikes in products such as coffee, chocolate and beef following extreme weather events and supply shortages overseas.
Treasurer Jim Chalmers (pictured) has rejected claims that higher public spending is pushing inflation higher in Australia
Housing costs, which account for about 21 per cent of household spending, also played a major role in inflation, rising 5.5 per cent over the year to December and contributing almost one-third of overall CPI growth.
‘The failure of Australia’s marketised and highly financialised housing model is the crucial reason for the crisis in housing affordability.
‘Higher interest rates won’t fix that, and will likely make it worse: while resale property prices fall when interest rates rise, development of new housing supply is chilled by higher interest costs – making the supply crunch all the worse.
‘Controls on rent and property speculation and expanding non-market housing supply should be central to tackling housing-driven inflation.’
Mr Stanford said inflation could be tackled more effectively by regulating prices in essential services such as child care and electricity, curbing rent and property speculation, and increasing competition in concentrated industries such as groceries and airlines.
‘Measures to address undue profit-taking in strategic or concentrated sectors should be a central component of future anti-inflation strategy.’
He also argued Australia needs stronger collective bargaining so wages can grow in a stable, predictable way instead of relying on high unemployment to restrain pay growth.
‘The need for a well-defined alternative vision of macroeconomic policy has never been more obvious,’ he said.
