Reserve Bank interest rates: Bernie Fraser takes aim at Michele Bullock over inflation fight

Former Reserve Bank boss Bernie Fraser has hit out at successor Michele Bullock’s three inflation-busting interest rate hikes this year amid warnings more may be on the way.

Mr Fraser was giving a vote of thanks to Jim Chalmers at an Australia Institute event in Canberra on Tuesday evening but overshadowed the Treasurer with his pointed remarks — marking an unusual step for an RBA ex-governor.

Australia’s official interest rate was lifted to 4.6 per cent last month and markets tip a roughly 50-50 chance of another hike before the end of the year. That’s still far less than the peak cash rate under Mr Fraser of 7.5 per cent through 1995.

The latest flurry of hikes followed the country’s key cost of living measure, core inflation, remaining above target since July last year.

Mr Fraser claimed the rate rises “won’t do much to solve the inflation problem” which he said was “not home-based, for the most part”.

“Those interest rate increases are not going to do much to change inflation except at the margin,” he said.

“They are causing a lot of pain and agony for working people.”

He also worried the rate rises would push unemployment — currently close to multi-decade lows — higher, saying the RBA was worried about inflation “to the exclusion of other activities”.

Ms Bullock said after the RBA’s decision on September 29 that “inflation . . . has been driven by domestic capacity pressures.”

“The inflation impulse from the Middle East conflict is in addition to this. Domestic spending and investment have been stronger than expected,” she said.

The central bank’s rate hikes are intended to slow demand to allow that supply capacity to catch up and counteract the cost impact of the Middle East war.

In his lecture, Dr Chalmers was painting a picture of an improved economy towards the end of 2027 with cost of living pressure to ease, unemployment to stay low and incomes growing.

“But so much of the next year will be hostage to decisions taken in Washington, on Wall Street, in Tehran,” he said.

“The war in the Middle East has been an absolute disaster for the cost of living, and its end can’t come soon enough.”

Also in the Treasurer’s sights was One Nation, which polled second to Labor on primary vote in the most recent Newspoll.

“Our role as progressives is not to scold those who see appeal in that message,” he said.

“It’s not to mock them or ‘cancel’ them or talk down to them.

“They’re benefiting politically from economic uncertainty and cost of living pressures at the same time as they’d make things worse.

“What they offer is just culture war camouflage for cutting wages and attacking workers.”

He said One Nation’s migration policy would “smash the economy” and had a wages policy that “would eat away at take home pay and living standards”.