The effect of the high petrol prices? (1 Viewer)

[sk8ie_boi]

As you may know that the petrol pirces are at $1.40 at some places... I was just wondering wat effect it will have on the RBA. For me, I believe since petrol prices are going up, which will push inflation up and therefore the RBA will need to increase interest rate to compensate the high inflation.

But also, wouldn't higher prices (as a result of high petrol price) slow down the economy anyway? Why would the RBA still want to increase the interest rate?

So, some suggestion and comment on dis?

 

[iamsickofyear12]

Petrol prices are already slowing down the economy. They won't raise interest rates to prevent inflation. Higher interest rates on top of the rip off petrol prices would be very bad for the economy.

 

[enigma~]

Well its all about the policy mix that the government and the rba adopt. The RBA's main objective is to maintain inflation in the 2-3% band (i think its currently at 2.5%) so if the prices of petrol are rising it means that prices will be pushed up and inflation will result. In that case the RBA may decide to increase interest rates to ensure that inflation does not become a problem in the economy. Although a slight increase may slow economic growth it will also mean that inflation is kept at a sustainable level. At the end of the day the government is trying to manage not only trying to manage eco growth but also inflation and unemployment.

Its quite likelt that i/rates will increase in the near future as i/rates have been steadily increasing in the US. We need to maintain an interest rate differential so its more than likely that the RBA will increase the i/rate at its next meeting. In addition to that there has been a fall in unemployment and we are reaching the natural rate of unemployment. When this is reached then it is likely that inflation will re-emerge. Without increases in productivity, its likely that any wage increases will put inflationary pressure on the economy so the RBA is looking at a number of objectives when it decides whether or not to increase i/rates- not just the petrol price.

 

[iamsickofyear12]

Yeah, was just thinkin..

Higher petrol prices = high inflation/increased costs for businesses
Wait, so .. let me get dis .. so people are buying less stuff, cuz of prices raise... which means, businesses are making less profit, which result in redundancy for their employees... okay, so all this will result in a slowed down economy. And also the RBA would definitly not increase the interest rate. So, really... Australia is going into a big hole (recession)...

That's why I said they wouldn't increase interest rates. Small businesses are going really bad at the moment. The one I work at is making almost no money. This past weekend was my first weekend with no work since I started working there.

 

[iamsickofyear12]

My reply just got posted above what I was replying to. That's a bit stupid.

 

[enigma~]

Yeah, was just thinkin..

Higher petrol prices = high inflation/increased costs for businesses
Wait, so .. let me get dis .. so people are buying less stuff, cuz of prices raise... which means, businesses are making less profit, which result in redundancy for their employees... okay, so all this will result in a slowed down economy. And also the RBA would definitly not increase the interest rate. So, really... Australia is going into a big hole (recession)...

I think you're not really getting the whole picture. You can't generalise. What i meant was that interest rates will probably increase in the near future to prevent inflation (which will most likely result from higher petrol prices). The RBA will raise i/rates to prevent inflation (among other things that i mentioned earlier) but that does NOT mean the economy will go into recession! Remember that higher i/rates also means increased investment into Australia...does that make more sense?

 

[sk8ie_boi]

Well its all about the policy mix that the government and the rba adopt. The RBA's main objective is to maintain inflation in the 2-3% band (i think its currently at 2.5%) so if the prices of petrol are rising it means that prices will be pushed up and inflation will result. In that case the RBA may decide to increase interest rates to ensure that inflation does not become a problem in the economy. Although a slight increase may slow economic growth it will also mean that inflation is kept at a sustainable level. At the end of the day the government is trying to manage not only trying to manage eco growth but also inflation and unemployment.

Its quite likelt that i/rates will increase in the near future as i/rates have been steadily increasing in the US. We need to maintain an interest rate differential so its more than likely that the RBA will increase the i/rate at its next meeting. In addition to that there has been a fall in unemployment and we are reaching the natural rate of unemployment. When this is reached then it is likely that inflation will re-emerge. Without increases in productivity, its likely that any wage increases will put inflationary pressure on the economy so the RBA is looking at a number of objectives when it decides whether or not to increase i/rates- not just the petrol price.

Yeah, was just thinkin..

Higher petrol prices = high inflation/increased costs for businesses
Wait, so .. let me get dis .. so people are buying less stuff, cuz of prices raise... which means, businesses are making less profit, which result in redundancy for their employees... okay, so all this will result in a slowed down economy. And also the RBA would definitly not increase the interest rate. So, really... Australia is going into a big hole (recession)...

 

[iamsickofyear12]

It did it again.

 

[enigma~]

My reply just got posted above what I was replying to. That's a bit stupid.

same....:S

 

[iamsickofyear12]

I think you're not really getting the whole picture. You can't generalise. What i meant was that interest rates will probably increase in the near future to prevent inflation (which will most likely result from higher petrol prices). The RBA will raise i/rates to prevent inflation (among other things that i mentioned earlier) but that does NOT mean the economy will go into recession! Remember that higher i/rates also means increased investment into Australia...does that make more sense?

I think they might just have to put up with a bit higher inflation since people are already spending less. Economic growth is still important. Australia is due for a recession aswell but that doesn't mean there will be one.

 

[enigma~]

I suppose they could cut taxes...i doubt they would let inflation take control. The RBA will most likely do something but who knows...and you can't exaclty say Aus is due for a recession...it reminds me oddly of what keating said a few years back, 'this is the recession we had to have' haha...

 

[iamsickofyear12]

I suppose they could cut taxes...i doubt they would let inflation take control. The RBA will most likely do something but who knows...and you can't exaclty say Aus is due for a recession...it reminds me oddly of what keating said a few years back, 'this is the recession we had to have' haha...

They obviously wouldn't let it get too out of control. But they might let it go a bit to try and keep people spending money so small businesses don't go bankrupt all over the place. I can say australia is due for a recession. It's the economic cycle, it has to come down sometime.

 

[enigma~]

They obviously wouldn't let it get too out of control. But they might let it go a bit to try and keep people spending money so small businesses don't go bankrupt all over the place. I can say australia is due for a recession. It's the economic cycle, it has to come down sometime.

haha...do u do physics by any chance? it sounds like the law of gravity, what goes up must come down

 

[sk8ie_boi]

Remember that higher i/rates also means increased investment into Australia...does that make more sense?

Yeah, I forgot about dis ... Hmmz yeah I guess ...

 

[iamsickofyear12]

haha...do u do physics by any chance? it sounds like the law of gravity, what goes up must come down

i did do physics in year 11. but i also did economics in year 11 and 12 and at uni this year.