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Forget price-gouging oil companies. It\u2019s not cashed-up boomers taking trips to Bora Bora. And don\u2019t sheet home Australia\u2019s inflation problems to renters fighting over bedsits with mould and damp.<\/p>\n
No, the real inflation dragons wrecking havoc across Australia are dentists, hairdressers and the local kebab shop owner.<\/p>\n
According to Reserve Bank governor Michele Bullock, homegrown inflation is lurking amongst the hairdryers, toothbrushes and grills of the country, forcing her and the RBA board to push up interest rates.<\/p>\n
Speaking to a group of well-coiffured economists on Wednesday night, Bullock – who took over as bank governor in September – said there were three pieces of evidence that showed inflation was being driven by strong domestic demand.<\/p>\n
Like a modern-day Sherlock Holmes, she said the first piece of evidence was that inflation is broad-based. It\u2019s not just petrol or electricity or rents that are climbing quickly but most goods and services.<\/p>\n
This was supported by her second piece of evidence: the inflationistas at the local hairdresser.<\/p>\n
\u201cHairdressers and dentists, dining out, sporting and other recreational activities – the prices of all these services are rising strongly,\u201d she said.<\/p>\n
\u201cThis reflects domestic economic conditions and is an indication that aggregate demand is sufficiently greater than aggregate supply to sustain these price increases.\u201d<\/p>\n
Bullock\u2019s third piece of evidence was a claim that there is limited spare capacity across the economy which is \u201cmost evident in high rates of labour utilisation\u201d.<\/p>\n
Those high rates of labour utilisation are most obvious in the ongoing low unemployment that Australia has enjoyed for the past 18 months.<\/p>\n
One of the reasons for low unemployment is that inflation – and the Reserve Bank\u2019s interest rate increases – mean people are taking on extra hours so they can make ends meet.<\/p>\n
Earlier this week, Bullock told a conference the low jobless rate was one of the country\u2019s great success stories, but in her speech it was used as evidence of inflation pressures that only higher interest rates can address.<\/p>\n
While haranguing people who want a short, back and sides or a burger, the governor neglected to mention that inflation for hairdressing services, recreation and culture (which takes in concerts and movies), restaurant meals and takeaway meals have all started falling.<\/p>\n
The most recent quarterly inflation result for hairdressers was the lowest in two years while dental service inflation is actually lower than overall inflation.<\/p>\n
The Reserve Bank review, released less than six months ago, noted the institution\u2019s problems with talking to the public, revealing it had received \u201cstrong feedback\u201d that the RBA could do more to better communicate with ordinary Australians.<\/p>\n
\u201cThe public can find it difficult to accurately interpret the RBA\u2019s communication,\u201d it found.<\/p>\n
Bullock conceded that point on Wednesday night, saying she did not think the bank had \u201creally hit the mark\u201d on getting its message out to the public in a \u201cdigestible way\u201d.<\/p>\n
She said that just minutes after arguing a buzz cut or a filling to a lateral incisor was evidence of an economy out of control.<\/p>\n
Bullock and the RBA face a tough job as they try to cool the economy. The bank\u2019s standing with the public has taken a battering since Bullock\u2019s predecessor Phil Lowe suggested interest rates would be steady at 0.1 per cent until 2024.<\/p>\n
That standing will be even worse if the country is forced by high interest rates to engage in backyard dentistry and kitchen haircuts.<\/p>\n