‘Different’: RBA governor Michele Bullock grilled on inflation, AI ahead of rates decision

RBA governor Michele Bullock has denied higher interest rates are driving inflation.

Ms Bullock appeared before the Committee for Economic Development of Australia (CEDA) for a fireside chat on Tuesday.

On Monday, the Commonwealth Bank forecast the RBA would bring forward an expected November rates rise, tipping the cash rate to rise by 25 points to 4.60 per cent.

Fuel prices surging once more amid ongoing tensions in the Middle East and stronger inflation data were highlighted in the forecast.

Speaking on Tuesday, Ms Bullock said there was a misunderstanding that “higher interest rates cause higher inflation”.

“I want to distinguish here between what people might think of as their cost of living – for people with a mortgage, their cost of living, if you like, would include what they’re paying on their mortgages,” she said.

“So, as interest rates go up, they see what it costs them just to live now as going up. Inflation is a different thing to that.

“Inflation is about what’s happening to prices in the economy, not interest rates.”

Ms Bullock said people were “looking at what’s happening with interest rates and what that’s doing to their cost of living and equating that with higher inflation”.

“This is where the message is quite nuanced and certainly something we’re trying to explain,” she said.

On Labor’s housing tax changes, Ms Bullock said: “You can see very directly the impact of the tax changes because you can see housing approvals for investors have just dropped.

“They’ve dropped for everyone, but they’ve really dropped a long way for investors.

“It has changed the dynamic for investors whether it’s worth them investing in housing or not.”

However, Ms Bullock said house prices had surged since the beginning of Covid and were now coming down from “a very high base”.