When is the RBA and some economists going to adhere to the true meaning of inflation?In flation happens when there is too much money chasing too few goods and services.Presently we have the RBA including fuel,food price increases due to lack of competition as inflationary.If prices of inelastic necessities such as food and fuel go up,this is not inflationary!It is actually lowering our living standards.

When the RBA puts up rates to supposedly lower demand,it will have almost zero impact on the demand for necessities.Increased interest rates by the definition of the RBA is inflationary.

So the next step in the logic is to assume that they actually want to lower our wages so we can compete in the Global economy.

Presently my daughter is on London.Bar work pays $12.00 per hr with no breaks for 8hrs.The cost of living in the UK is at least double that of Australia.Is that what we want for Australians,so they can appease the Global economy and the avaricious share market?

Very true Arjay.

"So the next step in the logic is to assume that they actually want to lower our wages so we can compete in the Global economy."

That is why Howard introduced WorkChoices - not to give employers and workers flexibility but to reduce real wages.

Interesting to note on recent news that due to the global economic downturn Australian consumers have now reduced their spending which is affecting businesses (but with no ensuing drop in interest rates). It seems a mad economic system that creates such a fine balance between inflationary activity on one hand and economic downturn based on the spending patterns of consumers on the other.

Increases in food and fuel prices are not due to the spending patterns of consumers but global economic conditions. As Arjay points out these price rises will impact on our overall standard of living and these price rises (which are out of our control) will reduce demand for other products but not for necessities which we need to survive. It is vested interests that are governing petrol and food prices when we could easily revert to gas power of which Australia has plentiful supply.

I have been wondering the same myself of late, particularly when I heard on the radio yesterday that the RBA was viewing some of the 4.5% or so inflation figure as partly caused be higher interest rates!

Why increased spending on food or petrol is any less effective at controlling discretionary spending than interest rates is one thing but to increase interest rates on top is harsh.

The "reduced wages" is an important observation. If we take a globalisation perspective there are a lot of poor people, and a few rich ones. Averaging out will not be pretty for the richer ones. With a negative current accounts deficit, in my view the averaging is happening.

Arjay, our dollar has increased in value partly due to our interest rate differential with the US etc, what does inflation do to the value of these overseas investments in the long run? ie is the exchange rate impacted down the track by inflation.

rojo,I agree.We always seem to have higher rates to offset our balance of payments deficit.

We have a $1.1 trillion GDP.This should mean an average income of $100,000.00 per person pa.Most of this money goes offshore,that is why we have a growing balance of payments deficit.It now totals $600 billion,or $60,000.00 for every working person.With record sales of resources the deficit grows,that is why there is pressure to reduce wages to make us more competitive.

With the development of poor countries comes more pressure on us to lower our living standards.Too many people and not enough resources or energy.The equation is simple but not very nice.

It strikes me that whenever the economy is discussed on this forum, conspiracy theories abound and a "them and us" attitude prevails without due concern for the results and causes of managing the economy. Interest rates are a very blunt instrument that cannot always get the desired result. There are always unintended outcomes and managing any economy is done for the benefit of the whole and there will always be casualties. Economics is not straight forward simple and easy.
One point so many lose sight of in their criticism of wealth and profits, is the fact that the country as a whole benefits from these two things and indirectly, so too does the individual when considering where their pension funds are invested. If you are interested (and I'm always fascinated by the subject)have a look at this article in The Daily Reckoning http://www.dailyreckoning.com.au/disinformation-in-the-inflation-wars-2/2008/07/17/

Snake,those who have lots of shares are doing well.I'm looking at the future for my children.Cheap energy underpins our living standards more than tech developments.With Globalisation energy is no longer cheap.Multi-nationals are calling the tune above both the individual and our Govts.We have seen the development of the working poor in the US and now the low living standards worsening in the UK for ordinary folk.They cannot save enough to buy shares in a system which they help make profitable.That is both dishonest and inequitable.If you cannot afford to buy the product and service you help create,then society is in decay.

People who live in a survival situation,have very little time to learn and thus don't develop a creative talents which moulds their future.The circle of poverty then becomes the anvil for all society to bare in terms of crime and social dysfunction.

40% of the US pop live in poverty.They have the highest rates of criminal incarceration in the developed world.

We all need discipline,however without education both from the home and school,decay is the rule rather than the exception.