The only things going up now are the prices

People with mortgages will blame the Reserve Bank of Australia if it raises the interest rate. But the real blame should be laid at the feet of the Labor government.  

The spending and policy agenda driven by Labor and specifically Treasurer Jim Chalmers has fuelled an inflation surge that has put an interest rate rise back on the agenda. 

Australia has an inflation problem, and the RBA is likely to respond. If not at this meeting, then down the track. 

In the year to December, Australia recorded inflation of 3.8%, placing us among a small group of advanced economies with relatively high inflation.  

OECD data show most comparable countries were below us, many closer to or under 3%. Australia has been a high-inflation country before, most notably in the 1980s, and the consequences were severe.  

Admittedly, the RBA was too eager to lower rates last year and should be held accountable for that error. The government will be only too happy to let the central bank shoulder the blame. But to stop there is to miss the larger and more uncomfortable truth. 

Fiscal and regulatory decisions can make inflation harder to contain and raise the economic pain required to bring it under control. That is precisely what has happened under the Albanese government. 

First, there is spending. Governments at both federal and state level have presided over rapid growth in public expenditure, particularly in 2023 and 2024.  

This surge in public sector demand poured fuel on an economy already running hot. There are tentative signs that spending growth moderated in 2025, but it is far too early to declare victory.  

Forward estimates continue to be revised upwards, suggesting restraint may prove fleeting. When governments spend aggressively, the RBA is forced to lean harder on interest rates. Mortgage holders end up paying the price. 

Second, there is wage policy. The Albanese government is the first since the Whitlam era to take office explicitly committed to forcing wages higher, andpursued this through workplace law changes, encouragement of dubious ‘gender equity’ claims, and outsized minimum wage increases. 

Rising real wages supported by productivity growth are desirable. But that is not what Australia has experienced.  

Productivity growth has been weak to non-existent. In that environment, pushing up nominal wages is a textbook recipe for inflation.  

Yet the government has largely escaped scrutiny for pursuing an inflationary wages agenda. 

The relevant measure here is unit labour costs, which capture the relationship between wages and productivity.  

Unit labour costs in Australia have been rising at around 5% a year for four years. When wages rise faster than productivity, businesses must raise prices.  

With labour costs embedded across the economy, it becomes extremely difficult to keep inflation below 3%. 

Third, there is energy policy. Labor’s dash for renewables ‘at any cost’, combined with hostility to new onshore gas supply, has driven up energy prices.  

Households see this directly in higher electricity and gas bills. Businesses face higher input costs and pass them on through higher prices for goods and services across the economy.  

This is not a temporary shock; it is a policy-induced cost increase that complicates the RBA’s task and entrenches inflationary pressure. 

The pattern is clear. Expansionary spending, inflationary wages policy and costly energy decisions created the conditions for inflation to rise.  

Once inflation takes hold, the RBA has little choice but to act. Interest rates are the symptom, not the cause. 

Mortgage holders will be right to be angry. But their anger will be misdirected if it stops at Martin Place.  

The decisions that made higher rates unavoidable were taken in Canberra. If inflation is the fire, interest rates are the fire brigade.  

Labor lit the match. 

Robert Carling is a Senior Fellow at the Centre for Independent Studies and a former IMF, World Bank and federal and state Treasury economist.