‘Why we’re fighting inflation’: RBA boss Michele Bullock hits back amid Jim Chalmers battle

Governor Michele Bullock has defended the Reserve Bank’s 13 interest rate hikes to fight inflation, arguing Australia’s most vulnerable have been hit hardest by surging prices.

The national economy grew just 0.2 per cent in the June quarter as businesses and households cut back their spending, in a sign higher borrowing costs are biting.

That came just days after Treasurer Jim Chalmers accused the central bank of “smashing the economy” with rate hikes.

But Ms Bullock hit back against critics on Thursday morning — while studiously avoiding a direct response to Dr Chalmers’ attack.

“High inflation hurts everyone, and especially the most vulnerable,” she told an Anika Foundation lunch in Sydney.

“Younger households and lower income households have been particularly affected by cost-of-living pressures.”

That’s because those Australians have smaller savings buffers and less scope to switch to cheaper items — as they are usually already buying the lowest-cost products in a category.

They also tend to spend a much larger share of their income on rents, which RBA data suggests have rocketed as much as 40 per cent over just four years.

Ms Bullock warned that young, less educated and lower income households would be hurt further if the battle against inflation takes longer than expected.

Higher-for-longer interest rates would be needed to slow the economy even more, risking a recession and greater job losses — likely to most heavily impact vulnerable households.

When asked why her tough love policy was still necessary given recent signs spending was falling, Ms Bullock said demand was still too high and supply was not catching up as quickly as hoped.

There’s a sharpening contrast between Dr Chalmers and Ms Bullock on fighting inflation.

The Federal Government has gone direct with cost-of-living support through power rebates and tax cuts, which economists have warned will only temporarily alleviate price pressure.

The RBA has lifted interest rates to bring demand under control, straining businesses and homeowners with debts and mortgages.

Ms Bullock acknowledged borrowers were squeezed hard by higher rates, but pointed out ongoing pain from inflation would be worse.

“I understand people are hurting from high interest rates . . . but I think it’s actually high inflation that’s really causing trouble,” she said.

“If we don’t get inflation down it’s bad for absolutely everyone.”

About one in 20 owner-occupiers with a variable rate mortgage had a cash shortfall — meaning spending on essentials and mortgages was higher than their income.

“We know the restrictive monetary policy settings that are necessary to bring inflation down are causing hardship to some households and businesses,” she said.

“We are very conscious of that . . . but inflation causes hardship too.”

The RBA has hit the brakes to slow demand and get the economy back into balance after prices rocketed when a wave of stimulus hit global economies coming out of the COVID-19 pandemic.

The central bank targets inflation of 2 to 3 per cent — yet the underlying rate was 3.9 per cent in June.