The cost of living is surging, so why will the RBA add to it by raising interest rates?

The Reserve Bank hasn’t raised its official cash rate target for more than a decade, so many Australians have no adult experience of what a rate rise is like and why the RBA does it.

To be exact, the central bank’s last rate rise was 25 basis points (that’s financial lingo for 0.25 percentage points) in November 2010, which took the cash rate target to 4.75 per cent.

At every meeting since, the RBA board, which makes the decision, has either kept rates steady or cut them.

That’s left rates at a record low of 0.1 per cent, which is below what even the RBA thought possible in Australia several years ago.

But now inflation — the main measure of the cost of living, or how much your money is worth — has taken off.

This week, the Australian Bureau of Statistics released the official Consumer Price Index (CPI) that covered the first three months of this year.

The headline number was 5.1 per cent, which was about 0.5 percentage points higher than most economists were expecting.


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