Last week, the RBA hiked interest rates for the fifth time this year claiming that there were excess demand pressures in the economy and that unemployment had to rise further to bring demand back into line with supply. They talk about the information they get from their so-called ‘liaison’ groups but don’t disclose further information about these ‘meetings’. The fact is they are talking to lobby groups from business and the financial markets who variously want rate hikes because the rising unemployment suppresses wage demands and boost bank profit margins. So of course they are going to tell the RBA anything that is required to elicit the policy change in their favour. The evidence does not support the claim that there is excess demand at the heart of the inflationary pressures. Indeed, the evidence supports two conclusions: (a) the rising oil prices is an overwhelming cause and is invariant to domestic interest rate changes; and (b) the income boost that the rising interest rates is providing for wealth holders is boosting some expenditure categories (restaurants, overseas travel etc) within the CPI, which will further push the CPI up as interest rates rise. It is amazing the established journalists never really demand answers from the RBA on these points.