The Reserve Bank of Australia raised interest rates this week, citing excess demand and persistent inflation. The column by Greg Jericho, chief economist at the Australia Institute, argues this framing is fundamentally dishonest. The RBA's own forecasts reveal the real driver: oil prices, which the bank now expects to hit US$109.50 per barrel in December — 35% higher than the US$81.20 it forecast just three months ago. The June 2026 inflation forecast jumped from 2.8% to 3.7%, and the bank doesn't see 2.7% until December 2027. The mechanism is external supply shock, not domestic overspending. The timing is telling. On the same day the RBA moved, the US launched limited strikes on Iran's Qeshm Island, sending oil markets whipsawing. Prices had just dropped 11% on news of Iran diplomacy talks before the strike reversed the move. Michele Bullock herself acknowledged in May — after an earlier hike to 4.35% — that rate rises 'will have no impact' on fuel-driven inflation. Five rate rises later, the bank is doing it again, using 'excess demand' language that its own monetary policy statement contradicts: firms report households are 'value conscious,' trading down to cheaper alternatives and cutting discretionary spending. The New Zealand comparison is the sharpest data point in the piece. The ACTU published research this week showing what happens when you combine aggressive rate hikes with fiscal austerity. The Reserve Bank of New Zealand raised its cash rate from 0.25% to 5.5% between October 2021 and May 2023 — faster and higher than Australia. The National government then layered on public service cuts and cancelled infrastructure projects including Auckland Light Rail. The result: recession through 2023-2024, unemployment spiking from 3.2% to 5.6%, and — the punchline — no better inflation outcome than Australia achieved. The distributional picture is stark. The RBA's own statement notes that consumer staples firms (Coles, Woolworths) have maintained resilient profits, and energy company equity prices have risen alongside oil. Households, meanwhile, absorb five rate rises while being told their demand is excessive. The entity that benefits from higher oil prices (energy companies) faces no policy friction. The entity that bears the cost (mortgage holders, renters through pass-through, workers through rising unemployment) gets squeezed from both sides — commodity-driven price increases and rate rises that suppress their income and employment. Jericho's core argument is that the RBA is applying a demand-side tool to a supply-side problem. The institution knows this — Bullock said as much in May. The political economy makes it worse: opposition parties and parts of the media are calling for government spending cuts, replicating exactly the New Zealand playbook that produced recession without inflation benefit. The question the column forces is simple: what would lower inflation more — five rate hikes, or oil returning to the pre-war US$70 a barrel? The RBA cannot control the second variable, but it is punishing households as though the first will substitute. The column preserves a critical distinction. The RBA forecast inflation reaching 2.7% by December 2027 — that is the bank's own timeline for returning to target even with rate rises. The oil price forecast for mid-2026 is US$95.30, still 26% above the August estimate of US$75.90. The entire inflation trajectory is yoked to geopolitics the central bank cannot influence. Every rate rise between now and the resolution of the Iran conflict is, by the RBA's own logic, economically inert against the primary inflation driver and actively destructive to employment and household welfare. The structural problem is an institution locked into a single-tool framework confronting a multi-causal crisis. The RBA has a mandate, a hammer, and a nail — and the nail is made of oil. Australian households are the wood.
