In this week's Saturday Paper, Paul Bongiorno argues the Reserve Bank has taken an unnecessary risk. He quotes the Australia Institute's chief economist, Greg Jericho, who says there is no data to justify lifting rates to an 18-year high. Jericho's diagnosis is that inflation is "being driven by the cost of fuel, caused by Donald Trump's war in the Middle East, and corporate profits." Bongiorno then offers a way out. "There are other ways to slow inflation, besides what Anthony Albanese now chooses to call 'the blunt instrument' of interest rate rises. It is up to the government to explore and implement them."
The data is not silent
On the monthly measure, headline inflation was 4.3 per cent in the year to September, and the trimmed mean was 3.6 per cent. The quarterly trimmed mean, the RBA's preferred gauge, rose 1.0 per cent in the September quarter, against the RBA's August forecast of 0.8 per cent. That was the fastest quarterly rise since early 2024. It took annual underlying inflation to 3.7 per cent. A 1.0 per cent quarter annualises to about 4 per cent, well above the 2 to 3 per cent target band.
Bongiorno notes that the RBA's own Statement on Monetary Policy shows the Middle East conflict dominating the contributions to trimmed mean inflation. He reads that as evidence the RBA is chasing a shock it cannot control. Bullock agrees monetary policy "cannot impact global oil prices". But the RBA's breakdown says something else as well. The trimmed mean cuts the biggest price moves each quarter. The oil shock still shows up strongly in what is left, through freight, travel and other costs. And it landed on top of an inflation problem that was already there. Underlying inflation was back above the target band by late 2025, before the war began, driven by domestic capacity pressures. So the RBA faces two problems, not one: inflation that had already settled above target, and a new shock that threatens to push it higher. A supply shock begins as a relative price change. It becomes general inflation when firms keep passing on costs, workers seek compensation and expectations drift. The RBA cannot stop the first round of the oil shock. Its job is to stop the second, and to bring down the inflation that was there before it.
Central banks can look through a supply shock when inflation expectations are anchored and the economy has spare capacity. Australia is short on both. Underlying inflation has sat above the target band for most of the period since 2022, and the labour market is only now loosening. A new shock lands on households and firms that have learned to expect price rises. The longer inflation stays high, the harder it is to look through.
The board's minority had a defensible case. Bullock herself said there were "five interest rate increases in the system now" and the last couple had not yet flowed through. That is an argument about lags, and it explains a six to three vote. It is not the same as saying there is no data.
Spending cuts still cost jobs
Treasurer Jim Chalmers and Finance Minister Katy Gallagher are examining options ahead of the mid-year budget update. Gallagher has kept open means testing a number of payments, including electrification and renewable energy incentives.
That is fiscal tightening. It reaches the same destination as a rate rise by a different route. A rate rise works through borrowing costs, asset prices and the exchange rate. Fiscal restraint takes demand out directly. Less money in household pockets means less spending, fewer orders and, at the margin, fewer jobs. What it changes is who pays. Rate rises fall heavily on households with variable-rate mortgages, mostly younger borrowers, while outright owners and savers come out ahead. Fiscal restraint can spread the load more widely, or aim it at those best able to bear it. That is a fair argument for a different policy mix. It is not a painless alternative.
It also cuts against the government's own list. Asked about the polls, Chalmers pointed to "tax cuts, and more bulk-billing, cheaper medicines and decent wages". Tax cuts add to demand. Cheaper medicines lower measured prices while leaving households more to spend elsewhere. The RBA has to lean against all of it.
The best fiscal option is more targeted. Economist Chris Richardson suggests slowing federal and state infrastructure spending, by cutting the federal share of state construction costs over the next 18 months. Public capex is competing with the data centre boom for the same tradespeople, concrete and engineers. Pulling back there takes demand out of the most capacity-constrained corner of the economy. Many workers released from a delayed rail project will move to the data centres, though not all, and not without friction. Rate rises, by contrast, hit every borrower, whether or not their spending adds to the pressure.
So targeted fiscal restraint may deliver more inflation relief for each unit of pain. Rate rises have other advantages: speed, flexibility, political feasibility, and a reach across the whole economy, including expectations, without Canberra having to pick which sectors to squeeze. And the restraint has its own price. The infrastructure arrives later, and stalled projects often cost more when they restart.
Credit limits hit new borrowers
APRA can tighten debt-to-income limits or serviceability buffers. That restrains credit growth without raising rates for every existing borrower. The pain falls on new borrowers and investors rather than on households already under mortgage stress.
It is still pain. First home buyers borrow less or wait longer. Housing construction slows, which works against the supply the government says it wants. And credit limits act on housing finance, not on fuel, freight or supermarket prices. They are a useful complement to rate rises, not a substitute.
Rebates and freezes are cosmetic
Governments can freeze the indexation of their own charges, subsidise energy bills or cut fuel excise. These lower measured CPI mechanically. The fuel excise cut of 2022 did exactly that, until it ended in September of that year and the price jumped back. Energy bill relief did the same. The cost moved from the pump and the power bill to the budget.
The RBA largely looks through these effects. And unless offset elsewhere in the budget, they also support demand. A household that pays less for fuel or power has more to spend on everything else. A fuel excise cut also blunts the price signal that tells people to use less oil when oil is scarce. So rebates and excise cuts flatter the headline while adding to the domestic pressure the RBA is trying to contain. The effect on underlying inflation is cosmetic at best, and perverse at worst.
Price caps are a populist trap
Calls to cap grocery and fuel prices surface whenever prices bite. ACTU secretary Melissa Donnelly points to supermarket prices rising 7 per cent between March and June, and asks what the RBA expects people to do about milk and potatoes. The populist answer is to cap them. A cap set below the market price tells suppliers to supply less. Farmers and processors facing higher fuel and freight costs cut output or leave the industry, and the shelves empty. A cap set high enough to avoid that does little for prices. The 1970s experiments with price controls ended badly almost everywhere. The inflation came back when the controls came off, and the shortages came first.
An Accord costs real wages
The Hawke government's Accord traded wage restraint for tax cuts and the social wage. It helped break the wage-price spiral of the 1970s. But it relied on centralised wage-setting, and on an ACTU that could deliver the unions. Enterprise bargaining has spread wage decisions across thousands of agreements.
The bigger obstacle is the price. An Accord asks workers to pay through their pay packets rather than their jobs. With real wages already falling, and the ACTU rallying outside the RBA, that is a hard sell.
A profits tax won't lower prices
Bongiorno's main proposal is a super-profits or excess profits tax on large corporations. He says it "would mightily discourage unwarranted price hikes". He points to Ampol, whose underlying first-half profit rose 376 per cent on the back of the Iran war, and to the big four banks.
A tax on profits does not change the price that maximises profit. A firm that charges what the market will bear before the tax will charge the same after it. It just keeps less of the proceeds. Design matters at the margin. A tax on pure rents leaves investment incentives untouched, while a tax on accounting profits can blunt them. Neither pushes prices down. Ampol's margins come from world refining and fuel prices set far beyond Australia. Most of its jump came from its Lytton refinery, where margins more than tripled as the war created a global shortage of refined fuel. A tax on its profits will not move the price at the pump.
The greed story has a second problem. Greed is a constant. It did not suddenly arrive in 2026. What changed was the market. A supply shock gave firms with stock and refining capacity a windfall. That is the price signal at work, telling the world to produce more fuel and use less of it. Taxing the windfall may be fair. If the tax is expected to recur, it may also discourage the investment in supply that would bring prices down.
The revenue could do some good against inflation, but only if the government saves it. Even then, the effect on demand is small. Much of the tax falls on shareholders, many of them overseas, whose spending was never adding to pressure in Australia. Richardson makes the same point about gas: Australia should tax it better, but doing so would not help against inflation here.
Supply reform is good but slow
The Australia Institute argues the changes to negative gearing and the capital gains tax discount have pushed investors towards building new homes rather than buying existing ones. If so, that is the best kind of anti-inflation policy. More supply lowers prices and lifts output at the same time. Competition reform and cheaper, more reliable energy work the same way.
But supply reform takes years. Investment in new homes adds to demand for builders and materials long before the extra houses reduce rents. It is the right answer to where Australia should be in 2032. It does nothing for underlying inflation near 4 per cent now. So supply reform is not painless either. Its price is time, and inflation runs on while the supply arrives.
Substitutes must subtract demand
Bullock drew a clear line. Monetary policy cannot move oil prices, and the rate rises target domestic capacity pressure. With supply fixed in the short run, any alternative that genuinely substitutes for a rate rise has to subtract demand. That means spending restraint, higher taxes or tighter credit. A windfall tax qualifies only through its revenue. Rebates and excise cuts make the headline look better while working against the RBA.
And the oil-driven part of the inflation will not yield to rates or to fiscal policy. It will pass once the Middle East shock does, or it won't. What policy can do is stop it spreading.
Richardson put the choice neatly on X this week: "We get to pick the poison, but it is still poison."
Budget repair is a different job
A government saving fights inflation only if it removes demand from the economy within the next year or so. A saving that repairs the budget can be slow, and it can fall on people whose money would never have been spent here. The two overlap, but they are not the same thing. Richardson's list of savings that serve both ends shows the overlap: the WA GST deal, NDIS reform, dodgy grant schemes, deeming rates for pensioners. Most of it is structural repair, with any inflation benefit arriving late. Every item also has a constituency, which is why governments have avoided them for years.
Budget repair matters for its own reasons. Taming the cycle needs symmetry: restraint on the upside buys room to act on the downside. Australia went into the global financial crisis with roughly zero net debt, which made the 2008–09 stimulus affordable and fast. But governments, like central banks, spend readily in a downturn and rarely claw it back in the upswing. Over successive cycles, fiscal space ratchets down.
Right now, repair and inflation fighting point the same way, which makes repair cheaper than usual. That alignment lasts only while capacity is tight. The strongest case is for repair legislated now and phased in, locking in the structural gain without slamming on the brakes as the economy turns.
Inflation is pain too
Bullock described the rate rise as "some pain now to prevent worse pain down the track". The column treats only the first half of that as real. But inflation is itself a pain. It erodes real wages, which the column concedes are already falling. It hits almost everyone, and it hits renters, low-income households and workers without bargaining power hardest. Unemployment is different. It concentrates the pain on the few who lose their jobs. That is the critics' best argument. But doing nothing does not avoid that concentrated pain. It defers it, and adds the broad pain of inflation on top. The choice is not between painful action and painless inaction.
Waiting also raises the price. The United States and Britain broke their 1970s inflation in the early 1980s, at great cost. Australia took a gentler path, through the Accord. Inflation stayed high for most of the decade after other developed economies had moved on, and tolerating it did not buy low unemployment. It finally broke in the recession of the early 1990s, when unemployment passed 10 per cent.
Turkey cut rates into rising prices in 2021. Inflation passed 80 per cent, and the central bank then had to push rates to 50 per cent, choking growth. Both countries paid twice: once through inflation, and again through the slump that finally ended it. There is no lasting trade-off between inflation and unemployment. A country that tolerates the first ends up paying for both.
So Bongiorno is right: the government does have other tools. Spending restraint, credit limits, profit taxes and housing reform all have a place. But each comes with a cost: lost jobs, lost services, locked-out buyers, weaker investment or years of delay. The case against the RBA is really a case for spreading the pain differently. That is a debate worth having. Done properly, it should result in fewer interest rate rises and tighter targeted fiscal policy. It is not the debate Bongiorno and Jericho are having.
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