We should not accept another Reserve Bank rate increase as the only credible response to inflation while labour productivity is going backwards and governments still treat supply reform as a speech-day accessory. When output per hour worked is flat in the June quarter and down 0.2 per cent over the year, squeezing demand with higher borrowing costs cannot restore the economy’s capacity—it only shifts pain onto households that are already carrying the bill for weak investment, clogged planning and a public sector that keeps hiring without measurable output gains.
Productivity is the constraint, not household discipline
The Productivity Commission’s September update shows hours worked and output both rose 0.4 per cent in the June quarter, leaving aggregate labour productivity unchanged after a 0.6 per cent fall in March. Over the year to June, hours grew faster than output, so productivity slipped 0.2 per cent. The commission notes the economy is barely one per cent above its 2015–19 productivity average—a stall that predates this week’s board meeting but explains why inflation keeps finding shelter in services prices even as goods soften.
The Reserve Bank knows the arithmetic. In its February submission to the Senate select committee on productivity, the bank said weak productivity growth caps potential output and living standards, and that it had cut its medium-term trend assumption to 0.7 per cent a year. That downgrade does not magically create more homes, faster grids or better-trained workers; it simply tells forecasters to expect less supply per person. Monetary policy can lean against excess demand, but it cannot draft a planning law or clear a skills bottleneck.
What a hike week actually does
Markets and the major banks now widely expect the cash rate to rise from 4.35 per cent when the Monetary Policy Board meets on 28–29 September. Governor Michele Bullock’s final pre-meeting speech to the Committee for Economic Development of Australia stressed a still-tight labour market feeding wages and costs—language that traders read as green-lighting a move. Fair enough: that is the bank’s mandate.
But households experience the same week differently. Variable mortgage holders who repriced in 2023 and 2024 face another round of repayment pain without any guarantee that builder approvals, energy investment or digital infrastructure will accelerate. Savers gain a little; renters still compete in a market where supply is policy-dependent, not rate-dependent. This is the double charge we oppose: monetary tightening landing on family budgets while the Productivity Commission’s reform agenda remains a catalogue of “ongoing” work rather than parliamentary votes.
The objection—and its limit
Critics will say inflation above target leaves the board no choice, and that blaming productivity is a distraction from the RBA’s job. We agree the board must act within its charter. We do not agree that federal and state governments get a free pass to synchronise a rate hike with inaction on competition, tax distortions and non-market sector efficiency—the very areas the commission flags when it warns no single lever can restore growth.
Bullock herself pointed to artificial intelligence as a long-run productivity hope. Hope is not a pipeline. Until cabinets publish measurable delivery on energy, housing supply and public-sector productivity, another rate rise is a transfer from borrowers to savers that does not expand what the economy can produce.
What we are not saying
This is not an argument that inflation is imaginary, and it is not a replay of the housing-plan editorial we ran when the board last threatened borrowers without land-release targets. Renters remain exposed; so do mortgage prisoners. The point is narrower and harder: if supply per hour is shrinking, rate hikes alone punish households twice—once in repayments, again in stagnant real incomes.
Parliament returns to a country where Newspoll discomfort and petrol prices dominate lounge rooms. The productive response is to pair any board tightening with supply-side votes this month: planning appeals, energy approvals, procurement rules that reward output. Without that pairing, the Reserve Bank will keep doing politicians’ hardest work while the Productivity Commission keeps writing updates nobody implements.