- by Anna Pha
- The Guardian
- Issue #2043
Photo: Stephen Mitchell – flickr.com (CC BY-NC-ND 2.0)
Two thirds of households face a hit as rising interest rates push up mortgage payments and drive up their rent. At the same time household budgets are also being squeezed by increases in the cost of fresh fruit and vegetables, healthcare, education, childcare, and energy.
Since May last year the Reserve Bank of Australia’ (RBA’s) interest rates have risen from 0.1 per cent to 3.25 per cent. In other words, they have not doubled or tripled but risen by 32.5 times! In the first years of mortgage repayments interest forms a far higher component. Household debt in Australia is the highest in the world at 200 per cent of income. The worst of the pain is still to be felt.
Home loan and rental arrears are set to rise. Charities are already stretched with hundreds of thousands of people unable to pay the energy bills or put food on the table.
The record low interest rates saw many more people enter the housing market in the belief they could afford a loan. As there is a shortage of housing stock, this drove up the cost of housing. Hundreds of thousands of households, farmers, and small businesses have become dependent on low interest rates in the belief that they would not rise for a few years.
If that were not bad enough, last year real wages fell by 4.5 per cent – the Consumer Price Index (CPI) rose by 7.8 per cent and nominal wages only rose 3.3 per cent This comes after decades of stagnating or even falling real wages, especially in the public sector.
The RBA would appear to have lost the plot, as it plans even more rate hikes. But from the perspective of the big business interests it represents, it has not. The initial outcome of its previous rate rises can be seen in the booming profits in the big end of town.
Workers, pensioners, the unemployed and others on low or middle incomes are being squeezed from all directions.
Soaring corporate profits are playing a major role in driving inflation. Monopoly pricing by the largest corporations is rife as they hide behind the smokescreen of inflation to raise prices far beyond what is necessary to pass on their higher costs, let alone absorbing those costs.
Last year Coles’ net profit increased by 17.1 per cent and Woolworths’ rose by 14 per cent. These are huge increases for the retail sector which is labour intensive.
The banks made a killing as they passed on the full amount of the RBA’s interest rates rises in full on loans but failed to do so on deposits. The big four banks are forecast to make a combined record $33 billion profit this financial year.
There is more pain to come with 880,000 fixed rate loans set to switch to far higher variable rates this year. A mortgage of say $600,000 to $750,000 could see an annual increase in repayments of $12,500 to $15,000 or more.
Capitalism is full of contradictions. Capitalism only knows one “cure” for inflation, a cancer threatening the economic stability, and that is raising interest rates. But higher interest rates are destructive in themselves.
Essentially, the RBA is driving the economy into recession as it slashes the purchasing power of workers and others on low and middle incomes and thus causing a contraction in the economy. Its conduct is reminiscent of former Labor Treasurer Paul Keating’s “recession we had to have.”
Workers and smaller businesses take the biggest hit while large monopoly corporations can mostly stand the heat.
Inflation, as it undermines the purchasing power of wages has seen a rise in trade union militancy and industrial action. There is nothing that employers fear more than being forced to grant real wage rises and better working conditions which would eat into profits. Capital requires a large pool of unemployed – surplus labour – so that it can suppress struggle and workers’ demands by pitting them against the unemployed.
Capitalist economists define “full employment” as a certain level of unemployment which they see as creating an adequate pool of reserve labour. The aim is to “cool” the economy, reduce real wages even further, suppress struggle, and increase the number of unemployed.
The claim by RBA Governor Philip Lowe that the bank is attempting to prevent a wage-price spiral is a long-promoted myth, an excuse to suppress wages. (See page 2 for real causes of inflation.)
RBA Governor Philip Lowe Opening in addressing the House of Representatives Standing Committee on Economics on 17th February sat smiling as he said: “I don’t recall any business ever saying they’d increased their prices to generate fat in their margins.” Of course, they don’t say it publicly!
“I get a lot of people writing to me at the moment telling me about their personal circumstances and it’s really, really tough,” Lowe said. “I understand that. And you know, I read those letters and hear those stories with a very heavy heart. I find it personally … it’s disturbing. People are really, really hurting and I understand that. But I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.”
“It’s easier for me to do unpopular things than it is for maybe some of you,”a smiling Lowe said when addressing a Senate Committee.
The likely outcome of these and future interest rate hikes is a recession with all that that brings for the working class, with no guarantee of inflation being curbed in the near future. The is driving the economy into recession to make workers pay for an eventual reduction in interest rates.
GOVT MUST ACT
The RBA is not addressing the causes of inflation. Nor is the Labor government as it stands on the sidelines making a few token gestures to ease the pain.
Apart from sacking the RBA board of mostly big business representatives, state and federal governments have many levers at its disposal to actually tackle the causes. These include:
- Rental controls;
- Construction of hundreds of thousands of public houses;
- Nationalisation of energy;
- Price controls;
- Free early childhood education and care;
- A super-profits tax;
- Raising social security payments above the poverty line;
- Cancel the nuclear submarines and slash military spending;
- Redirect fossil fuel subsidies to renewable energy;
- Assist low-income households with renewable energy;
- Merchant shipping fleet to ensure trade in goods.