RBA Weighs Rate Hikes as Households Absorb the Shock

When workers discover that their employer is performing poorly on climate, 71 per cent say they’d discuss it with colleagues. Nearly a quarter would do nothing. That’s the shape of power at work: institutions make decisions, while workers weigh what they can do from below.

The Reserve Bank of Australia is considering higher interest rates as oil prices climb amid the war against Iran and the widening conflict in the Middle East. Oil ended the previous week at US$106 a barrel, while the bank’s forecasts, due next month, assumed prices as much as US$20 lower. The RBA’s official interest rate already stands at 4.6 per cent, a 15-year high. Unemployment hit a five-year high of 4.7 per cent in September.

Who Pays for the Shock

The bank faces a familiar squeeze: contain inflation or risk more damage to economic activity and employment. Inflation has stayed above the RBA’s 2-3 per cent target for three of the past four years. After weaker job figures, markets cut the perceived chance of an increase to 4.85 per cent at the November meeting from about one in three to about one in five.

The price shock reaches well beyond petrol. Diesel powers transport, manufacturing and food production, and its price has climbed to around its level at the start of the Russia-Ukraine war. Australian inflation rose 0.4 per cent in August; it would have fallen that month without higher petrol prices. Liquefied natural gas costs about US$28 per unit, more than double its pre-war level. Wheat prices have risen 37 per cent this year, soybeans 24 per cent, sugar 42 per cent and cocoa beans more than doubled, as oil, fertiliser costs and this year’s “super” El Niño push food prices higher.

Households don’t face that arithmetic on equal terms. In the three months to June, home borrowers paid a record A$21 billion in interest on loans, although mortgage payments as a share of disposable income were lower than in 2024. Most borrowers stayed ahead on repayments, and many kept large balances in offset accounts. Low-income people without mortgages have also endured higher rents over the past three years and rank among those inflation hits hardest.

RBA governor Michele Bullock and senior RBA researcher Anthony Brassil described the bind: “If prices are rising faster than nominal incomes, households experience a direct loss of purchasing power. At the same time, weaker activity may mean that unemployment and underemployment are already increasing.” They said monetary policy “cannot eliminate the real economic loss caused by the shock. It can only influence how that loss is distributed over time.” They also noted that high inflation hits households with limited financial buffers hardest.

The International Energy Agency said global diesel prices, after falling from a September record of US$200 a barrel, remained almost double pre-war levels and were beginning to affect “real incomes, economic activity and inflation.” AMP chief economist Shane Oliver linked higher refining costs to disruptions in the Strait of Hormuz and recent Ukrainian strikes on Russian refineries. International Monetary Fund chief economist Silvana Tenreyro said oil-supply rerouting, improved energy efficiency and some countries’ shift towards renewable energy had helped the global economy withstand turmoil. Analysts increasingly expect global supply pressures to last through 2027, as the ability to offset reduced Middle Eastern oil production nears its limit.

Markets, Budgets and the Reform Sales Pitch

An ASX study based on a survey of almost 4,500 people found that 39 per cent of adults owned listed investments outside superannuation. About 2.8 million Australians own exchange-traded funds, roughly double the number in 2020; the industry manages about A$388 billion and was expected to approach A$400 billion. These funds offer diversified holdings and generally charge lower fees than active fund managers.

But who benefits from the market’s machinery remains contested. Jarden described a “sustained and dramatic” shift in major banks’ share registers over the past three years, with “mum and dad” investors playing a smaller part as passive funds, including superannuation money, grew. Jarden analyst Matthew Wilson said index funds buy more shares in the largest companies, potentially lifting their prices in a cycle where “the more you buy, the more they go up, so the more you buy.” He said passive investing had stretched CBA’s “fundamental valuation.” Stockspot chief executive Chris Brycki rejected the claim that passive funds distort markets, saying professional investors now have to compete more on skill. The forces behind daily movements in CBA’s share price remain hard to pin down.

An ABC analysis by business editor Michael Janda said Australia and other Western countries had put off economic reform, including budget repair. A Grattan Institute report found state government debts had more than doubled since 2019, while interest on state debt had doubled to 0.6 per cent of annual economic output and was likely to double again. Borrowing costs to fund deficits had risen roughly four-fold since immediately before COVID. Grattan warned that “Tomorrow’s Australians will increasingly pay the price for today’s deficits, whether through higher taxes or worse public services.”

Grattan’s proposed repair would lift the goods and services tax from 10 per cent to 15 per cent, tax fresh food and consider ending exemptions for health and education. The institute said the plan would raise A$76 billion annually: about A$33 billion for income-tax cuts, about A$25 billion for welfare and rent assistance and poverty reduction, and A$18 billion for states facing rising health costs. It also recommended ending the 2018 GST allocation deal with Western Australia, which it said would free A$6 billion for the federal budget.

The proposals face political opposition. Anthony Albanese rejected calls to abandon Western Australia’s favourable GST distribution, established by his Liberal predecessor Scott Morrison. The federal government also faced resistance to removing an additional private health-insurance subsidy for older Australians. Other disputed proposals include cutting National Disability Insurance Scheme spending, limiting tax minimisation through trusts, and reversing negative-gearing and capital-gains-tax concessions. Grattan said lasting repair required “both spending and revenue reform.” Treasurer Jim Chalmers put the obstruction plainly: “Power is much more effective right now in the distorting and blocking than the building or reforming.”

The cost shapes decisions about family and home. An AMP survey-based report found more than half of adults under 30 had changed plans about having children because of cost-of-living pressures, and close to half had reconsidered having children altogether. Nearly two-thirds felt they needed to own property before starting a family; AMP calculated that saving a 20 per cent deposit took most people more than a decade.

Workers Demand Proof, Not Promises

A survey of 2,048 working Australians in the Curtin Centre for Applied Ethics’ first Polycrisis Report Series report found that 97 per cent believed large companies had at least some responsibility to act on climate change. More than half said their employer had made a public climate commitment, but only one in seven thought it was making good progress. Fifty-nine per cent named energy and utilities companies as having major responsibility to cut emissions, compared with 53 per cent for mining and fossil-fuel companies and 19 per cent for banks and financial institutions.

Nearly four in five respondents thought greenwashing was at least somewhat common among Australian businesses. Eighty-five per cent said they’d trust an employer’s climate claims if the law required disclosure and penalties applied to misleading claims; 79 per cent would trust independently audited claims, compared with about 44 per cent when companies reported on themselves. Only 9 per cent of entry- and mid-level staff thought their employer was making good progress, compared with 31 per cent of senior managers and executives.

Workers described what they might do. If employers showed strong commitments and verified progress, 84 per cent said they’d accept workplace changes to reduce emissions, 78 per cent would change their own habits and 68 per cent would contribute financially. Nearly four in 10 employees said they’d take a job paying A$10,000 less at a company with strong, verified climate performance. The report’s author, Astghik Mavisakalyan, urged businesses to involve workers in transition planning, report progress to workers as well as boards and investors, and independently check their claims. The message from below is clear: workers face upheaval, and they’re demanding evidence from the companies making the promises.