Everyone talks about inflation and interest rates, but far fewer people can explain how they're connected or why the RBA only really has one tool to work with. In part two of the four-part series, Ana and economist Evan Lucas get into what inflation actually is, why a bit of it is a good thing, and why the same rate rise can flatten a young family while barely touching someone who's already paid off their house.
In this episode we'll discuss:
💸 Inflation defined as the rate money loses purchasing power, and why 2 to 3% is healthy rather than something to fear
💸 Real wage growth explained: if your pay stays flat, you've effectively gone backwards
💸 Why the RBA's only lever is interest rates, and why Evan calls it \"doing fine art with a sledgehammer\"
💸 Who actually feels a rate rise: mortgage holders versus asset-rich retirees who might even benefit
💸 Monetary policy versus fiscal policy, using childcare subsidies and the $426,000 income cut-off as a live example
💸 The tobacco excise as a case study in unintended consequences: $8 billion in lost revenue and an organised crime problem, because show me the incentive and I'll show you the outcome
💸 Tax brackets that don't move with inflation, tertiary education debt that's ballooned, and the shrinking wage premium for going to uni (from about 50% down to 33%)
💸 Productivity versus activity: why doing more with less isn't productivity, and what the internal combustion engine (and possibly AI) tells us about enhancing output instead
Evan's answer for anyone feeling overwhelmed by all of it: look at history. Rates go up and rates come down, and every cycle so far has ended. Whether the next stretch is short or long, zoom out. Next episode, Evan and Ana get into property and housing.
Disclaimer Any advice is general and does not consider your financial situation needs, or objectives, so consider whether it’s appropriate for you. You should also consider seeking professional advice before making any financial decision.
Tash Invests Pty Ltd is a Corporate Authorised Representative #1317713 of Rask Licensing Pty Ltd. Read the FSG available from https://tashinvests.com/links
Pearler is an Authorised Representative #1281540 of Sanlam Private Wealth Pty Ltd AFSL #337927. Read the FSG available from https://pearler.com/financial-services-guide
If you are considering any of the products we spoke about during the show, be sure to read the Product Disclosure Statement & Target Market Determination available from the product issuer’s website before deciding.
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