The RBA continues to be too cautious.

The RBA kept interest rates at record low levels again today, once gain refusing to increase rates from 0.1%.

The RBA once again declared they would be patient, waiting to see how things play out rather than moving early on interest rates.

This approach is a mistake and the RBA should be moving more aggressively, raising rates now and keeping a lid on inflation before it has the opportunity to get out of control. By raising early, the RBA can keep the high point in rates at a lower level than if they wait too long, and inflation gets out of control. By waiting, the RBA runs the very real risk they will have to raise rates higher and much more aggressively to bring inflation back under control. This will be far more damaging to the economy than a steady program of early rate rises to keep inflation under control.

The RBA appears to still believe that supply chain challenges are a major contributor to inflation. However, they have talked little about the unprecedented amount of stimulus spending over the last 2 years and the obvious effect this will continue to have on prices. More money competing for largely the same mix of goods and services will always be a driver of inflation. As confidence returns to the economy with the end of COVID, this stimulus, which has largely been saved through the pandemic period, will flow back into the economy and cause inflation, irrespective of external factors.