Podcast
Interview With Guardian’s Australian Politics
Andrew Hauser
Deputy Governor
24 February 2026
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Online
Patrick Commins
Andrew Hauser, thank you very much for joining us on the Australian politics podcast.
Andrew Hauser
Thank you.
Patrick Commins
It’s a bit unusual. We’re straying a little bit with the Australia politics
podcast by having you on, Deputy Governor of the RBA, and we’re really appreciative.
Andrew Hauser
Why is it a stray?
Patrick Commins
Well normally we have politicians.
Andrew Hauser
Ah.
Patrick Commins
Yes, yes. The only way is up. That’s what I’d say.
Andrew Hauser
I’m sorry, it’s central bankers’ job to be boring and politicians not to be. So bad
luck.
Patrick Commins
Well, we’ll get somewhere in between I reckon. So just to start off with, I mean how long have
you been in the job at the RBA and how’s your experience been as a central banker in such a high
profile role in Australia? You may have noticed that Australians get quite worked up about interest
rates. You may or may not have noticed. So what’s your experience been like?
Andrew Hauser
Yeah, look, I’ve been here two years now and I always say to people it’s an enormous
privilege. It’s actually quite rare for foreigners to be given the opportunity to set interest
rates on behalf of another country. I obviously worked at the Bank of England for Mark Carney who
perhaps is the most high profile example of that. But you can only be extremely humble when you get
that invitation. I have tried to respond to that by getting to learn about Australia. I love
Australia. My sister lives here, has lived here for 20 years or more. My wife’s sister
lived here beforehand and therefore been many times and one of the first things I knew I had to do
when I got here was to get out and about. So I’ve travelled right around the country, been to
visit community organisations, businesses, you know, local officials to see how the economy really
works and that’s just been an enormous eye opener. The UK has its own challenges at the moment,
as you’ve probably been reading about and certainly been writing about. So it’s a breath of
fresh air in some ways to come to another country. But as I say, the overarching sense is one of
humbleness. I mean you mentioned the public discourse. I think that’s wholly positive. I’ll
be honest with you. I think central bankers, I joined central banking in the early 90s and the job of
the head of press at the Bank of England, proudly said, was to keep the press out of – keep the
bank out of the press. That was his job. And that’s entirely wrong because we’re given big
and important responsibilities which have effects on everybody’s lives. We do it, I hope, for
the public good, but in return for that, we must be held accountable. And Australia specialises, I
think it’s fair to say – I’m sure, Patrick, you’re part of that approach in
holding people like me to account, sometimes robustly – but I would say to people, if
there’s one country you could come from where the Australian discourse and press don’t
actually seem any more robust than you’re used to, it’s the UK, and I came through many
crises, actually, that the Bank of England was involved, most recently the LDI crisis involving Liz
Truss as well. And, you know, the Bank of England was heavily held to account during that period. And
I say I welcome it. And if it’s sometimes a bit lively, that comes with the territory. Important
job to do and we deserve to be held to account.
Patrick Commins
Well, we might come back later to, you know, the role of politics and pressures from politicians on
the central bank. I’m sure we’ll have some time to go back to that later. But, you know,
let’s go back to – let’s go to brass tacks, then. I mean, the RBA, you cut rates
three times last year in the space of six months, and then it looked like inflation was under control
and got down just below 2 per cent. Fast forward six months, we’ve got a rate hike,
we’ve got inflation running at nearly 4 per cent. So can you tell us a little bit what
happened? It’s obviously a surprise, but did you get it very wrong? Was there something that
came out of nowhere? How do we go from having inflation under control to having inflation at nearly
4 per cent? And the RBA hiking rates?
Andrew Hauser
Yeah, fair question. You, I know, go to the press conference with Michelle Bullock quite often and
someone encouraged her last summer – winter, sorry, Northern Hemisphere trick – to
reflect on the triumph that was Australian monetary policy achieving the soft landing where many
other central banks, including some in the region, have not. And she wisely said that central bankers
don’t ever declare victory. It’s a continuous process, and that certainly is how it’s
proved to be. Three things happened that I don’t think anyone frankly thought were likely back
in the middle of last year. The first is the world economy, and you’ve been reporting it a great
deal, including recently, back last April, pretty much everyone thought that the whole paradigm of
the world economy was changing. Donald Trump had announced his enormous raft of tariffs. I was in
actually China the week after that and you could see the effect it had had. And people felt that
China – that Australia in particular, would be likely to be in the crosshairs of that because
of our strong trading relationship with China. And so pretty much everyone was asking, how bad could
this get?
Patrick Commins
And even you guys were talking about we might even need to do a double cut or something.
Andrew Hauser
Well, we did a scenario. It’s an interesting exercise that we did a ‘what if’, and
some people, I think, interpreted that as being a suggestion that we were going to. It was a
conditional statement and I’m glad we did it. And we’re going to do a lot more of those.
Patrick Commins
But I guess it shows how worried you were about it.
Andrew Hauser
Yes, it does. I’m not going to deny that. And I don’t think if we went back and looked at
the pages of the Guardian or any other newspaper or any other serious adviser, that everybody was
worried then and forecast were marked down across the globe, the IMF and everybody else. Those
forecasts, of course, have not proved to be true. The world is doing very much better than any of us
feared back then. That’s a combination of things. The tariffs have turned out to be the bark is
less than the bite, or the other way around, I can’t remember how that goes. And the AI tech
boom has just totally blitzed an enormous amount of that. So those two things taken together have
left the world economy in a much stronger place, plus stimulus. And that has also meant that
financial conditions in the globe have been extremely easy. And that’s had an effect too. We
then come on to the second point that was a surprise: it is that the financial conditions in
Australia, the stance, if you like, of our monetary policy, which people often think is just
summarised by the current level of the cash rate target, but it isn’t. It’s summarised by
the whole range of financial indicators, from bank lending to corporate debt prices to house prices
to asset prices.
Patrick Commins
So debt was cheaper than you were expecting, asset prices were going off, lending was happening
faster.
Andrew Hauser
All of those things. The banks, Australian banks, are very strong. They’ve been regulated that
way and they’re ready to lend. They have a set of CEOs, many of whom are new, who have high
price valuations at the bank that they need to justify. You’ve written about that too. I know.
And yes, credit growth has been pretty strong, firstly to the business sector, but also increasingly
to the household sector. I know you’ve been writing about that, so yeah, you combine the strong
credit growth and you combine the easy credit conditions globally for those who can borrow globally.
And you have a situation where the financial conditions in the economy were not well summarised by
the cash rate alone. Some of us worried that might happen during 2025. I think it did. So that’s
the second surprise. The third surprise has been the speed of recovery in private sector demand. Now,
you’ve written about this too. It’s not punching the lights out and we may even come back
to that question, but relative to forecasts, including our own, back in the middle of the year,
private sector demand, which we’ve been hoping and expecting will pick up and have not through
the first half of ‘25 and ‘24, did surprise on the upside alongside an assessment, and
I’m sure we’ll talk about this too, that the capacity of the economy is really very
constrained. So world economy, financial conditions, pickup in private sector demand, those things
change very rapidly. Now, our stance didn’t change on a sixpence and in fact, if you look at
market pricing going back to August–September last year, you can see that people were fairly
progressively marking out their expectations for future rates. As this sequence of data of the kind
I’ve described came in, there was no single moment when people suddenly went, aha, they’re
doing a U turn. It was a gradual adjustment to clearly strengthening conditions. So you might well
expect me to say this. There’s a famous Maynard Keys quote, isn’t there, about if the facts
change, I change my view. That’s my perspective. I think our perspective on the situation. And
look, and we’ll come to this too I’m sure, inflation is too high. We cannot let it get that
out of control. People’s memory very recently of the costs of inflation. And just remember,
inflation hits the poorest, inflation hits those least able to deal with it. It’s one of the
most toxic forms of tax, frankly – some people call it a stealth tax – that you can
imagine: it damages businesses, it damages households, it hits the worst off. And although I know
people do not like higher interest rates – although savers do, but if you’re a borrower,
you certainly don’t – we cannot let inflation get back out of control again. And we
don’t intend to.
Patrick Commins
There’s been quite a lot of debate happening in Parliament House around the role that government
spending has played in this kind of turnaround in inflation. And in particular, you’ve got the
Opposition saying if the Government wasn’t spending so much money, we wouldn’t have had
this level of inflation and we wouldn’t have had interest rates, basically trying to pin rate
hikes on the government, which is what an opposition does. So I don’t know, how do you see this
debate? And then if it’s not directly, it’s not the change in growth, we just have a very
high level of spending now – government spending as the share of the economy, federal and
state. To what degree does this limit the room for the private sector to grow? Because we saw the
private sector come up, but it could not grow as much without causing inflation because government
spending is already so high in the economy.
Andrew Hauser
I have a very strong view on this, actually, which is that – and it goes back to the comment
that we were making right at the beginning – we’re unelected technocrats and we’re
asked to achieve two things. We’re to achieve the inflation target, and we’re asked to get
as close to full employment as we can. And those are difficult challenges, as you’ve already
been kind enough to highlight. We’re not there yet. Extending that job to providing free advice
to democratically elected governments strikes me as completely beyond and outside our remit. I grew
up in Europe – small ‘e’ Europe, not big ‘E’ Europe, depending on your view
about where the UK sits – the ECB in particular (the European Central Bank) spent about a third
or half of its publications trying to give free advice to national governments. It never made any
difference. Actions talk and words don’t. And the actions that we are required to take is to set
interest rates, to bring inflation back to target and to maintain full employment. And that’s
what we’re doing. And I’m often quite struck that people who disagree with a particular
government policy try to draw technocrats, maybe respected technocrats like the RBA in on their side,
but my God, if you come in on the other side of it, then they will be rightly saying, ‘How dare
you, this is a democratically elected government?’. There’s a process for allowing the
public to decide the government’s priorities, including spending priorities, and it’s
called the ballot box. And it works very well in Australia. It doesn’t mention the RBA anywhere.
I mean, we could go out and give advice to the journalistic profession or the mining profession, or
we could say, hey guys, maybe you should, you know, you could have written that, story better.
Patrick Commins
But I think to be fair, Guy Debelle has given free advice to journalists in the past and not always
super complimentary.
Andrew Hauser
Well we all know and love Guy Debelle.
Patrick Commins
Although we’ve also had opinions about the RBA, so it runs both ways.
Andrew Hauser
But listen, I …
Patrick Commins
You’re dodging the question, essentially, you don’t want – not dodging, that’s
an unkind way to say it.
Andrew Hauser
Yeah, I’m not having that. Come on, Patrick. I’m certainly not dodging the question in any
way whatsoever. I’m taking the question head on. I’m not going to have that. We have a big
job to do. We take account of spending in the economy wherever it comes from. I said somewhere else
– slightly cliche phrase perhaps – we’re an equal opportunity monetary policy maker.
A dollar of demand that comes from the public sector, a dollar of demand that comes from the private
sector, if it contributes to inflation, we have to react. I don’t see why getting involved with
particular advice where we’re not experts is thought to help the public debate. There’s a
vibrant public debate about public spending and long may that continue. I just think that it’s
our job, frankly, to try and get inflation back under control and to maintain full employment, and
that’s what we’re focused on.
Patrick Commins
That’s fair enough.
Luca Ittimani
It makes sense why you don’t want to offer free advice to the Government, but you can kind of
see why people are a bit confused about the economy being ‘boxed in’, is one way you
suggested it might be described last year, when private spending is up and spending overall is up and
inflation is going up immediately. But a lot of people don’t feel like they’re spending a
lot more money.
Andrew Hauser
Yep. Yeah.
Luca Ittimani
A lot of consumers are telling us, and they’re telling you, presumably, ‘We’re not
actually lifting our spending that much, but you’re telling us that we’re spending too much
and suddenly the economy is overheating’. So if it’s not government spending that’s
doing that, then like, what is it? Is it company spending? Is it particularly wealthy Australians?
Andrew Hauser
Well, Luca, you’re absolutely right. And I was trying to think of an analogy of this, actually,
because people say, I think you wrote a piece, Patrick, saying it’s sort of crazy to say that
this economy is overheating when it’s growing so slowly. And the predominant factor here is the
growth capacity of the economy. That’s the big thing. As Paul Krugman once said, productivity
growth isn’t everything, but it’s almost everything. It provides the resources that you
earn and spend money on. It’s the tax income that governments have. It’s the wealth that
Australia has developed over time. Unless the economy can grow at a higher rate, then clearly demand
can’t grow as quickly without inflation. And we are seeing that. And I can perfectly understand
why people think, hang on a minute, it’s not exactly the glory days is it, with growth at these
levels? Because it’s not. And our view is that the sustainable rate of growth of the economy is
around about 2 per cent. That’s quite substantially lower than Australia has had in
the past. And I say this point, and this is not party political, because the Government has exactly
the same view, and I’m sure the Opposition does, too: the number one challenge really, for the
economy, is working out how to get our growth rate back up. It’s not unique to Australia. We
talked about the UK earlier. The UK is in a terrible position in terms of its own capacity strength,
capacity for growth, caused by Brexit and other decisions that, again coming back, were made
democratically but nonetheless had substantial economic impact. So I do understand when people think,
well, is this as good as it I gets? The answer is, until we find ways to grow the economy, we have to
act to ensure that inflation stays under control. And as you say, there’s a pie, and you decide
how much of that pie goes on the public sector and how much of it goes on the private sector.
That’s a democratically elected government’s decision and the process for deciding whether
that division is right or wrong. I sometimes make this – sorry, I hope this isn’t too
abstract – I sometimes make this point: supposing the RBA did its job perfectly and so it held
nominal demand at the capacity of the economy at all times. Well, inflation then would be at target,
and the government’s only choice would be what share of that output went to the public sector
and what was left over for the private sector. And if you think about that highly stylised example,
it’s pretty weird to ask why the central bank would be asked to do anything more on that.
We’re doing our job in that example perfectly straightforwardly and inflation is on target.
Luca Ittimani
Yeah, yep, sure thing. But in terms of, like, that breakdown, I mean, you’re seeing demand shoot
up and despite people not feeling like they’re spending suddenly a whole lot more. So where is
that coming from? Who’s suddenly spending a lot more and where’s that demand shooting the
lights out from?
Andrew Hauser
Well, it’s not shooting the lights out, but relative to where we expected it to be and relative
to where it was a year or two ago, it is stronger. And it’s basically households and businesses.
And that’s not a very deep answer to your question. Household incomes have actually recovered
quite strongly. There’s obviously been tax cuts, inflation has come down, and there’s been
a great deal of saving over the last few years. So households have rebuilt their balance sheets. And
so actually – sorry to get technical – but consumption functions that central banks use
have actually been wanting consumption growth to pick up for some time. And Patrick and I were
talking about this before, sentiment – consumer sentiment, household sentiment – is
obviously quite weak and that appears to be holding things back. But the resources in aggregate have
been there for a while for households to spend more strongly and they’re beginning to do so.
Business investment, which had been terrifically weak for a long period, picked up quite strongly the
third quarter – data centres and what have you being part of the story there – but
households and businesses are both spending. But none of them, neither of them will tell you –
and I’m sure they don’t tell you – that they’re exactly ecstatic about
conditions. They are growing and they’re better than they were. But this isn’t the good
times yet.
Luca Ittimani
I mean, even the relatively weak growth that we have seen in private demand looks like maybe
it’s kept up from the indicators we have for January so far. I mean, we’re in company
earnings season and companies are telling us that customers are still going out and spending.
Andrew Hauser
That’s right. Yeah.
Luca Ittimani
So if that’s keeping up, if people are still spending a lot of money, are we on track for
another rate hike?
Andrew Hauser
Well, it’s a million dollar question, isn’t it? Or is it billion dollar, sorry, that’s
the $1 million …
Patrick Commins
It’s big. It’s huge.
Andrew Hauser
I don’t know. And anyone who tells you they do know is lying. So I’m not here to give you
an inside track today. I could tell you ‘Well, of course they are, Luca, or of course
they’re not.’ But I don’t know because we still have a fair chunk of data to come in
before we meet again. We’ll have a CPI number, we’ll have the national accounts, we had
some labour market data this week, which I think you wrote about. You’re right. The economy does
look like it’s continuing to grow at rates at or around what we were seeing at the end of last
year. We’ll need to see how that translates into inflation. And this is where this capacity
issue comes in, because nobody knows what the capacity of the economy is. So when I say we think it
might be 2 per cent, it is only that: it’s an informed guess. And it may well be that,
in fact, companies and people are able to increase productivity growth more substantially than
we’re assuming, in which case we can grow more rapidly without inflation. And by the way, people
sometimes use that phrase ‘inflation nutter’ in one of the pieces the other day, we’re
not inflation nutters. And if the economy turns out to be able to grow more quickly without inflation
picking up further and coming back down, then we’ll be the first to celebrate and we won’t
need to react. But look, to be clear, and I will be clear, if interest rates need to rise further to
bring inflation down, then they will. And I think the public would be on our case if we didn’t
say that.
Patrick Commins
We will go back to people being on your case in a second. But just before we move on to that, we had
another strong month of jobs growth. This is a bit what Luca’s talking about. It’s kind of
the strength of last year’s extended in. We just got that this week. Unemployment’s at
4.1 per cent which is quite low for us. Wages, you know, decent. Is there any information
out of that labour, the latest labour figures or the wages data that has maybe added more information
about where the next move will be? What additional information did you get out of this?
Andrew Hauser
Well, as you say, I mean the wage data came in broadly in line with where we’d expected and
unemployment was a little bit lower than we had expected. Not a great deal, but a little bit. I think
you had to be careful with these one month data, particularly unemployment data. They’re very
noisy.
Patrick Commins
That’s what we said about December though, and it seems like it’s extended a bit.
Andrew Hauser
So if you just look at the monthly profile of unemployment, labour market looked like it turned in
September and it looked like it turned down. But we’ve been here before and we’ve called
turning points before, the market is called turning points before and then had to, you know, eat some
humble pie when things have changed. So we smooth, we look through some of these short term
movements. But you’re right, one possible interpretation of those data is that, actually,
employment growth is picking up again, unemployment is falling down. Another interpretation, and
probably the more prudent interpretation at the moment is that broadly speaking, the market remains
flat at that low level. And if that’s true, our judgement that the labour market is a bit tight
would remain the case. You know, our expectation is that probably the sort of sustainable level of
unemployment is probably a little bit higher than that number. But who knows, it’s another
unknowable number. But it’s probably the case that if unemployment stays around that level, the
labour market remains a little bit tight. And as you say, Luca, that is part of the story about why
we suspect in our central projection that inflation remained above target for some time. Does it mean
another rate rise? I don’t know. Because there’s a lot of other data that could come in and
it may well turn out that inflation starts ticking down again or it may tick up. So we’re going
to wait and we’re going to make our judgement on the basis of those data.
Patrick Commins
It’s hard, isn’t it, because we don’t know what – like you’re saying
– you don’t know what rate unemployment can be before it starts causing inflation. You
don’t know what capacity constraints are. Tough job, just to sum it up.
Andrew Hauser
I was always told to say, never say you have a tough job. And as I said back at the beginning, I
don’t want to sound cliche, but it is a privilege to be working on this topic on behalf of
Australian people. And I know what tough jobs are. Tough jobs are being, you know, an A&E doctor,
a nurse. It’s being a miner who’s away from his family for months on end. It’s not
having a job at all. Doing a job like mine is not tough by comparison. But you’re right, there
are a lot of unknowns. We do have models, we can make informed guesses, but we also have to be honest
and open about what we don’t know as well as about what we do. Sometimes people give us credit
for that. Sometimes people say, bloody hell, why are we paying you all this money if you don’t
know anything? And both challenges, I guess, are legitimate, but we are feeling our way.
Patrick Commins
Speaking of … if I can phrase this. Speaking of people, who wonder if you know what the
bloody hell you’re doing. We had a new Shadow Treasurer.
Andrew Hauser
I do wonder, actually, in Australian public discourse, how where’s the line? Because it
doesn’t seem to be …
Patrick Commins
Swearing?
Andrew Hauser
Yeah.
Patrick Commins
I think it very much depends on the company you’re keeping. I don’t know, it’s, you
know. Anyway, sorry. The point of this was the new Shadow Treasurer, Tim Wilson, so he’s come
out and he seemed like he was saying, the Coalition’s going to revisit whether they support the
dual mandate, quickly reversed that and said, no, no, we support the dual mandate. But what he made
clear was that there was a degree of dissatisfaction with the Reserve Bank and they felt like the
Reserve Bank was overweighting this full employment part of its dual mandate. And the dual mandate is
that the Reserve Bank go for full employment and for low and stable inflation. Correct me if I’m
wrong. And so he was saying that, you know, I’m paraphrasing very strongly here, but, you know,
there’s a woke RBA in charge now. They’re not being tough enough on inflation. And because
they weren’t tough on inflation and you tried to preserve the gains of employment, that’s
why we’ve got inflation back.
Andrew Hauser
We’ve never been less than 100 per cent focused on the target for inflation. It’s
clear, it’s in statute, we don’t have a choice. When we were cutting rates last year, our
forecast – and I would remind others, pretty much everyone else’s forecast too –
were for inflation to come down gradually to the 2.5 per cent midpoint of the range, with
employment remaining close to full employment. It was on the basis of those forecasts that we took
the decisions we did. We did not say, ‘Hey, let’s let a bit of inflation get out there so
that we can achieve some …’
Patrick Commins
Yeah, just a little bit, like a few more jobs.
Andrew Hauser
… because that’s very dangerous. And so for anyone who would say, you know, ‘I think
that that’s a dangerous strategy to adopt,’ I would totally agree. We only took the
approach we did because we believed on the basis of the evidence at the time that inflation was more
likely than not to be coming back to the target. And as I say, most other commentators believed that
too. In light of the news that I went through earlier that we heard through the back end of last
year, we began adjusting our narrative and the minutes and the discussions from the Governor over
time as we said, ‘Look, we see risks coming in on the upside.’ So firstly, the number of
rate cuts that were in the market were priced out. And then increasingly people started to think,
here come the possibility of some rate rises. So we’re as focused now on inflation as we were
last year, and we will be next year and the year after. And I say that again, I don’t want to
keep coming back to this, but we’ve only very recently had an extraordinary lesson in how
painful and toxic inflation can be. And the legacy of that in terms of people’s dissatisfaction
with the economy is very, very evident. And we’d be crazy if we ever took our eye off that
particular ball. Others will have to judge whether they believe this, but our focus on inflation last
year was as strong as it is now.
Luca Ittimani
But the Shadow Treasurer’s got a point, doesn’t he? I mean, maybe your decisions
weren’t weighting jobs over inflation, but the outcome has been: you’ve had more than full
employment over the last few years and inflation has often been not on target, so the outcomes are
kind of weighted towards employment. Isn’t that fair?
Andrew Hauser
Certainly, it’s true that the labour market has performed very well and again, I don’t
think that that is something – I’m sure the Shadow Treasurer and everyone else is not
criticising that – the outcomes in the labour market have been very good. They’ve been
very good internationally. As I say again, at the time that we were cutting rates last year, our
view, and the view of most other commentators, was that we could hold employment at or around that
level with inflation coming back to target. So there wasn’t a trade off evident. As it became
clear that inflationary risks were picking up, we acted and we’ll continue to act.
Patrick Commins
So, Luca, you want to hit Andrew with some reader questions?
Luca Ittimani
Yeah. So we asked our readers and listeners to send in some questions so we could get people …
Andrew Hauser
I should say I come from a Guardian reading household. I don’t know if that means I get more or
less credit, but I remember … what are you doing? You’re screwing your face up.
Patrick Commins
I’m not. This is just my natural face. I was just trying to think.
Andrew Hauser
I don’t know how far back you guys go, but the Guardian in the 1970s was notorious for two
things. One was having ink that came off on your hands.
Patrick Commins
So low quality.
Andrew Hauser
And the other one was that it was called the ‘Grauniad’.
Patrick Commins
Yes.
Andrew Hauser
Because almost every story had numerous spelling errors. I don’t actually know why that was the
case, but years afterwards it was still …
Patrick Commins
We still call it the Grauniad.
Andrew Hauser
Oh, do you?
Patrick Commins
Yeah, yeah, yeah, yeah.
Andrew Hauser
Spelling errors have gone?
Patrick Commins
Spelling errors are no more.
Luca Ittimani
We’re perfectly these days.
Andrew Hauser
I’m not trying to delay answering the readers’ questions.
Patrick Commins
Sounds like a stalling tactic. Classic central banker stalling.
Andrew Hauser
But let me tell you, another story of even less interest to your readers, your listeners.
Luca Ittimani
They’re very keen to hear from you. They want to know, so this one’s from Addison: Why do
you keep increasing the cash rate as a tool when the ones driving up inflation are conglomerate
supermarkets and cashed up Boomers? Addison’s words.
Andrew Hauser
Well, I do understand that people will feel that some of the drivers of inflation are unfair or
against their interests and indeed that can be true. But in fact, if you look at the pickup of
inflation since the middle of last year, it’s been very broad based. It’s been in consumer
durables; it’s been in the cost of housing – and I’m sure we’ll come back to
that – it’s been in market services, restaurants, takeaway meals. Inflation in its purest
definition is a generalised rise in prices across the economy. And so I gently push back on the idea
that it’s only one or two of those prices that’s driving it. It is unfortunately slightly
more general. But I do understand and people will take views about particular corporate strategies of
pricing and we saw all of that during COVID, didn’t we? Shrinkflation and all the rest of it.
And I hope people, and I’m sure people do vote with their feet when they think that companies
have been taking the P. Is that – P? Is that alright?
Patrick Commins
Taking the piss is okay.
Andrew Hauser
I won’t go there. Interesting.
Luca Ittimani
I mean, yeah, you’re right to say maybe there’s not just one price, but there is one price
that people are really, really paying attention to: house prices. We get a lot of questions about
house prices. You’ve made a big point of saying, ‘We can’t take responsibility for
house prices, we have to focus on everything at once.’ But at some point when you’re
cutting interest rates, you know you’re going to send house prices flying. So how can you just
throw your hands up and say, ‘Oh, we’re just not watching them’?
Andrew Hauser
Well, we don’t say we’re not watching them, but what we do say is they’re not our
target. Our target is CPI inflation and we do have to therefore allow for the fact that there are
multiple routes to the inflation target with different house prices. You could have a route back to
inflation with high house prices or a route back with low ones. We do take them seriously because
higher house prices generate wealth effects. They obviously also make it harder – and I
don’t know where the question comes from, but I suspect it may come from someone who’s
struggling to get onto the housing ladder – makes it harder for them to do so. So they’re
important assets in the economy. They are – the kind of response you describe, where interest
rates fall and house prices rise – is actually part of the transmission mechanism of monetary
policy. So if house prices didn’t rise at all when interest rates fell, actually monetary policy
might be slightly less effective. I would make the point that some house price rises for some people
can be beneficial in terms of inequality as well as not. So for those who have mortgages on a house,
a house price rise will allow them to release equity from the house. Of course, at the same time,
that also means that it’s harder for those who haven’t yet got onto the housing ladder to
get on. So it’s quite a complicated situation in terms of house prices, but it’s very, very
clear, and I don’t think anyone’s denying this, that Australia has a housing problem. It
needs to respond, it is responding. But the quantity of houses in the economy that are needed, given
the rate of growth of our population, is obviously too small.
Luca Ittimani
But the housing problem that you mentioned is pretty severe. I mean, how entrenched do you think it
is? We had a question from Jules. Jules was asking, ‘Are asset prices now so high that those of
us without assets are pretty much going to be eternal serfs with no prospect of inheritance?’
Andrew Hauser
I hope not. I don’t know enough about your questioner’s background to know if they’ll
be a serf or not, but I hope not. We have to take house prices and indeed all asset prices as given.
They’re part of the input to our decision. The question around inequality in the relationship
with monetary policy, I think is, is important and maybe I could address that. We are charged with
targeting two things: one is inflation, one is unemployment. The biggest single contributors to
inequality in economies over time are those two things. There is nothing more dramatically harmful to
inequality than not to have a job. And there is nothing more harmful to inequality than to be facing,
on a fixed income, a rise in prices and of the kind that we’ve seen in the past few years. And
so people sort of say, ‘Oh well, you know, central bankers are blind to the inequality effects
of what they’re doing.’ Nothing of the kind. If we achieve our targets, we have made our
biggest single contribution to inequality in the economy. Some of the other things that are described
are driven by a range of other drivers that unfortunately we can’t influence. But, you know, I
sometimes hear this, you know, you’re part of the fat cat brigade. You’re there to help out
bankers or – can’t remember what the phrase of your previous correspondent was, but, you
know – kind of parasitic corporates or whatever. No, you know, from time to time those people
are as angry and cross with us as your correspondent. And, you know, we could be an equal opportunity
disliked, I guess. Everyone hates us. We don’t care. Which is – I don’t know if you
went to Millwall while you were in the UK, but that was Millwall’s chant: ‘Everyone hates
us and we don’t care.’ Maybe that should be the RBA …
Patrick Commins
A rousing chant for central bankers.
Andrew Hauser
Well, it’s a bit depressing because, you know, they were kind of in the third division or
something and they were right, actually, everyone did hate them. So I hope that’s not true of
the RBA. Millwall supporters are actually quite dangerous. So if there’s anyone listening who
likes Millwall, great team. Go Millwall.
Luca Ittimani
You do care a little bit.
Andrew Hauser
No, look, that was obviously a joke. The ‘we don’t care’ bit is obviously enormously
important. We are trying to do the best job we can for the people at large. It’s in our statute,
actually. We are there to promote the welfare of the Australian people. And I can tell you –
and again, I hope this doesn’t sound cliched – I’ve devoted my whole life to doing
that, first to the UK and then for Australia. And I know that the people I work for are actually
driven and motivated by that. And people quite often say to us, ‘We hate your decision, which we
know you’re doing it – maybe misguidedly, maybe sensibly – on our behalf.’ We
are genuinely above politics. We are genuinely above the kind of distributional issues that
you’re talking about and trying to do the right thing for everyone.
Patrick Commins
We’ve got one more reader question which I suspect this is a topic that you could talk endlessly
about. But it is interesting. This is the question: Why is raising interest rates the only lever the
RBA pulls? Surely in the entire world of economic policy there are alternatives.
Andrew Hauser
So you know Churchill’s comment about democracy? It’s the worst form of government, except
for all the rest. And I think probably I’d make the same comment about interest rates. It is a
blunt tool. It does have distributional effects, the kind that Luca and his correspondent talking
about. It has all the uncertainties that we’ve been talking about as well. But the other
approaches that people have taken over time – price caps which tried in the 70s, credit
constraints, exchange rate targets – had much bigger flaws. And so we are very honest about the
limitations of interest rates and their effects. But the other tools, unfortunately, are worse.
During the period of zero interest rates, of course we tried QE and other tools and those had their
own critiques.
Patrick Commins
And printing money was the very crude way of describing it.
Andrew Hauser
Well, in some sense, central banks always print money. So the interest rates are the price of money
and that is unique. It is only the central bank in any economy that can actually do that and
it’s a monopoly supplier of money. So QE was obviously, ‘What’s that mean? Your
printer goes brr or whatever that thing is.’ But in some sense that’s actually always what
central banks are doing. Even where they’re setting interest rates, they’re regulating the
cost of money and in so doing affecting all of the interest rates that go out through the wider
economy.
Patrick Commins
Okay, so it’s the best we’ve got.
Andrew Hauser
It’s the best we’ve got. There’s a lot of track record of understanding its impact,
but we are very open and I think and humble about the uncertainties of its impact.
Patrick Commins
Is it getting less effective? Because we look at the RBA’s record, I suppose, over the last
– and we’ve talked about this before – like over the last decade or so, if you add
up all the times that they’ve actually been within the 2 to 3 per cent, it’s
only been about two years of those 11 years, not consecutive. So it was either too low and then
it was too high. So how effective has the interest rate tool really been during this time if we
haven’t actually managed to be within the 2 to 3 per cent that you’re
targeting for most of it?
Andrew Hauser
So I knew you’re going to ask me this question, Patrick. So I went away and looked at what the
average annual inflation rate since 1993, which I think is when most people say inflation targeting
in Australia began and it was 2.6 per cent.
Patrick Commins
Is that what you’re targeting though, an average over time?
Andrew Hauser
No. But the point of inflation targeting relative to what came before is that you don’t let the
price level drift. You don’t just let it drift up. And the long run success of inflation
targeting is important, I would assert – I’ll come back to your original question in a
minute – because we rely on inflation expectations in the long term being well anchored. And
they have remained so, including during the most extraordinary pickup inflation that we’ve seen
in the last few years. So that long run efficacy of policy, actually I would say is important. As you
say, the reason why – people might think, well, how the hell is that true? Have you fiddled
with the numbers? I hope I haven’t, I don’t think I have.
Patrick Commins
Let’s hope you get the numbers right.
Andrew Hauser
Exactly. How can that be true? And given that inflation has been sort of going gangbusters the last
few years, and it is, as you say, because there was a period when inflation was quite materially
below the target ranges before I arrived in Australia. And the debate back then was very different.
You mentioned the kind of … how long has it been in the target range? I mean, my argument
would be the sort of economic shocks we’ve seen in the last few years have been extraordinary.
They really have. You’ve had Covid, of course, a one in 100 year event. You’ve had
Trump and his tariffs. You’ve had, in a more European context, the Ukraine conflict, which
caused the UK inflation to go berserk because we’d – wisely or otherwise – switched
our entire energy production to gas, and the gas price went through the roof. So the size of these
shocks, I would say, and on most metrics has been really quite large in both directions and we have
to respond to those shocks as we see them. Now, could we, should we, have done better? I mean, that
is right, that we should be able to account for that. But the point of the range is to allow for the
fact that there will be some variation and yeah, we’re going to bring it back. And we will bring
it back. And we’ll do what it takes to do that.
Patrick Commins
That sounds like a better chant for the RBA. ‘We’ll bring it back.’ ‘It’s
coming home.’
Do you want to ask a final serious question before we let Andrew go?
Luca Ittimani
Yeah. I mean, just an hour ago we had one come in on Instagram from Becca. Becca asked, is the RBA
tired of taking the blame for government failures?
Andrew Hauser
I hope we don’t take the blame for government failures. We’ve got enough on our plate
trying to deliver the goals we’ve been asked to do. And there’s been plenty of commentary
– you’ve given me some of it today, Patrick – about our success or otherwise in
achieving that. You’re out there as public officials having to explain yourself. I’m doing
it here now. And you will get criticised. And as I say, I think that comes with the territory. Our
job is to hit inflation. Ultimately, only the central bank can achieve the inflation target –
unless you’re in a position of what’s called fiscal dominance, where the government is
printing so much debt that it is basically collapsing the value of the currency, which is rare, it
happened in Weimar Germany, it hasn’t happened very much since – it’s actually only
the central bank that can deliver the inflation target. So, truly speaking, we shouldn’t be
blamed for the errors of others, but people should hold us to account for our actions. And
you’ve done that today, guys. So thank you.
Patrick Commins
I think we’ve really performed a public service. Thank you so much for coming in, Andrew.