The Reserve Bank of Australia (RBA) increased the policy rate by 0.25 points on Tuesday and claimed that it was because the inflationary outlook was in danger of accelerating out of control as a result of excessive demand pressures. This followed last week’s CPI release which showed the December increase to be 0.96 points. When we examine that increase more closely, we find that 97.6 per cent of the December rise in the All Groups CPI was due to ‘Holiday travel and accommodation’ (most associated with Xmas and the one-off Ashes cricket series) – 70.9 per cent was due to International holiday travel and accommodation and 26.6 per cent due to Domestic holiday travel and accommodation. It is nigh on impossible to construct that as an economy that is ‘bursting at its seams’, notwithstanding all the lurid contributions from the RBA cheer squad in the media, who seem to spend their professional lives repeating press releases from organisations like the RBA, without giving them any due diligence. The reality is the RBA has bowed to pressure from the financial markets and rewarded the demands for higher rates from bank economists, who work for institutions that profit from such rises. Such is the state of macroeconomic policy in Australia.