Here’s the latest analysis from business reporter Gareth Hutchens:
The Reserve Bank will consider lifting interest rates again today.
Some economists believe we will see a significant rate hike, with more rate hikes to follow in the coming months.
But will rapid interest rate hikes slow growth and increase unemployment? And if they do, what does that mean for the unemployed?
Well, we are already using unemployment to dampen inflation. That could give a clue.
This inflation is a global problem and experts around the world are trying to solve it.
But a few weeks ago, US economist Larry Summers said that if US policymakers want to get their inflation under control, they need to push unemployment up significantly in the coming years.
He said there were few options available to them.
“We need five years of unemployment above 5 percent to contain inflation — in other words, we need two years of unemployment at 7.5 percent or five years at 6 percent unemployment or a year at 10 percent unemployment “, he said.
It’s not uncommon to hear an economist speak so candidly, and Mr. Summers is as mainstream as it gets.
But it was heartless.
Through different periods of history, economists like him have often suggested that the best “cure” to kill inflation is higher unemployment.
By logic, if you take money away from people, they have no money to spend, so eventually prices will fall and the economy will rebalance.