Inflation up, rates up

When they are released tomorrow, the latest official inflation figures are expected to be the highest since the global financial crisis. It does not take an economics degree to determine that prices have risen over recent months. The typical forecast is for prices to have risen by 1.7 per cent over the first few months of this year and 4.6 per cent since this time last year.

There is now speculation on whether the Reserve Bank will raise interest rates before the election on 21st May. A 6.6 per cent surge in fruit and vegetable prices has led to a 2.1 per cent quarterly jump in food prices overall, which creates a compelling argument for the Reserve Bank to act sooner than later.

Inflation is running wild. Initially fuelled by a faster-than-expected recovery from the pandemic, it has been exacerbated by production shortages and logistics problems.

There is a slim chance of the Reserve Bank increasing interest rates next week, but they prefer not to interfere in the political process and don't want to be seen to be doing so. However, that principle cuts both ways. As a body independent of politics, it has a duty to act in the national interest, regardless of a looming election.