The Reserve Bank of Australia has raised the cash rate to 4.6%, with markets now pricing in 4.85% by March. The stated reason is inflation at 4.0%. The unstated context: strip out petrol prices driven by the war on Iran and the datacentre boom, and core inflation held steady at 3.6%, with the monthly indicator actually falling in August. The RBA is tightening into a supply shock it cannot control with interest rates. Governor Michele Bullock was asked directly whether a recession might be needed to get inflation to the 2.5% midpoint. Her answer was not no. It was "I hope it's not needed," followed by a scenario in which people accepting 3-4% inflation could trigger "quite a dramatic slowdown." The central bank is telling you, on the record, that it might deliberately engineer a recession to prevent expectations from drifting one percentage point above target. Meanwhile, the entities actually profiting from the price surge face no scrutiny from monetary policy. Ampol's interim profit rose 376%. Its share price has outpaced Woodside and Santos since the Iran war began. The mechanism is straightforward: geopolitical supply disruption flows through to pump prices, pump prices flow through to CPI, CPI triggers rate hikes, rate hikes crush household demand. The refiner captures the margin. The household absorbs the cost twice — once at the pump, once through the mortgage. Household spending in August fell once petrol was excluded. This is not an overheating economy. This is an economy where one input cost — driven by a war and concentrated through a small number of corporate intermediaries — is being treated as if it were broad-based demand inflation. The RBA's own data shows the distinction. Its policy ignores it. Bullock's redefinition of full employment is remarkable in its circularity. Full employment, she explained, is "the level of employment which is consistent with low and stable inflation." As Alan Kohler observed, there is functionally one mandate: inflation. The employment half of the dual mandate has been defined into a tautology — employment is fine as long as inflation is fine, and if inflation isn't fine, employment must be too tight. Rising unemployment, she noted, "doesn't mean job losses" but rather people "taking longer to find a job." The distinction matters less to the person not finding one. The historical record is brutal. After the 1990s recession, it took a decade for the employment-to-population ratio to recover. Male full-time employment fell and never recovered — not after the 1990s recession, not after any recession in the past 55 years. These are not temporary adjustments. They are permanent scars on the labour market that compound across generations. The policy framework treats a supply-driven price shock as a demand problem, applies the only tool it has — rate hikes — to the people least responsible for the price increase, and openly contemplates recession as an acceptable cost of anchoring expectations. Ampol's shareholders are not being asked to anchor anything. The extraction runs one direction.
