Caleb Bond:
Joining me now is senior fellow and chief economist at the Institute of Public Affairs, Adam Creighton.
Adam, good to see you. So a slight increase this month compared to what it has been, but historically extremely low. What does that tell us about the state of the economy in the nation post-budget?
Adam Creighton:
Yeah, well look, a very slight increase, but that’s really just because the oil price fell a little bit. And of course, as you know, in the last three days, it’s gone up again 13%. It’s well above 80 US dollars a barrel again. So I expect the modest improvement to reverse. But look, it’s really no surprise. It’s 50-year lows. It’s not just the Westpac one, it’s also the ANZ survey. They’re both at almost 50-year lows because real wages have been falling now for five, six years. I mean, the official measure is they’re down 5.1% on the OECD figures from early 2021. And of course, based on IPA research, if you throw in house prices in there or apartment prices into the CPI, because as you know, they’re not included, then real wages are back where they were in 1998. So no wonder there is a lot of discontent.
And there’s also been a lot of bad news in the press recently. The IMF’s come out and downgraded growth. We’ve just talked about flat lining real wages. We’ve got the highest inflation rate in the developed world for core inflation, 3.6%. So there are a lot of problems. So it doesn’t surprise me, Caleb, at all.
Caleb Bond:
You raised this point about housing not being included in CPI. I just want to ask you, Barnaby Joyce, of course, said the other day that they needed to look at, or he was suggesting that a One Nation government would look at various changes to the Reserve Bank, including perhaps giving them more power over government spending. Exactly what format comes in, we don’t know. But he also raised the possibility of housing being included in the rate of inflation. Do you think that would be a good move?
Adam Creighton:
Well, look, it probably should be included in some versions of the CPI. I mean, it’s been out of most CPIs for many decades, but it was in the US CPI until I think about 1983. So there is precedent of having house prices in the CPI. Of course, governments don’t like it, but obviously it shows very high rates of inflation.
I mean, as for the Reserve Bank, where I used to work briefly when I was younger, it’s a great institution, but I mean, it hasn’t achieved its target at all. It’s meant to keep inflation between 2 and 3%. And since it’s had that target since the early ’90s, I think it’s only been between 2 and 3 about half the time, which is a pretty poor record. I’d say that’s a fail.
And right now people are even talking about cutting rates when you’ve got an inflation rate near 4%. So I mean, to me, that doesn’t speak of a central bank that really cares about inflation. They seem to care more about unemployment. And personally, I don’t think they can really control the unemployment rate. They can control the inflation rate, which as I say is 4%, but they’re very reluctant to lift rates.
Caleb Bond:
Of course, that’s the only thing they’ve got the only lever is to lift interest rates. We’re in a world of pain at the moment if they lifted interest rates even further. People from homeowners to small businesses would be screaming bloody murder. And so would the federal government, to be perfectly frank, because they know it wouldn’t reflect well on them either. So is there a legitimate argument to be made then that some level of RBA intervention in government spending could be helpful because it would at least give them another lever to pull?
Adam Creighton:
ell, certainly I think the RBA should be more vocal in talking about the impact of deficits on inflation. It’s a huge impact, but they can actually control the rate of inflation through other means as well. It’s just that not many people understand this, but the Prudential regulator APRA controls how much banks can lend. And that’s the real impact on the money supply. The money supply in Australia is growing at about 8% a year and it has been growing at that rate for years now. Now 8% a year, that’s a huge amount of Australian dollars flowing into the system every month. I mean, even Australia’s population is not growing that fast. So of course there’s going to be asset price inflation. And if the Reserve Bank and if APRA were serious, and let’s face it, they’re the same institution more or less, if they were serious about slowing the money supply, they’d just make it harder for banks to lend. Because when banks lend, of course, they create money. And that’s what causes the inflation ultimately.
Caleb Bond:
Now I mentioned at the top of the show this business about first home buyers being pushed out of the new build market because of Labor’s tax changes. The Aus reporting today that investors are muscling in on that territory because of course now it’s the only place that they can negatively gear a property. And the savings that they’re finding and the tax implications are actually really good because of course you can come up with a grand depreciation schedule. It looks really good, which puts up the prices for first home buyers, right? None of this made sense from the beginning. At what point does the government have to admit that they got this wrong?
Adam Creighton:
Well, look, it’ll probably… Well, I mean, they’ll never admit that. Of course, they’re never ever going to admit that, but the proof will be in the facts in the next few months. Let’s just see what rents do. Let’s see what transaction volumes do in the housing market. And let’s see what prices do.
I still think it’s too early to be definitive yet. The budget was what? Middle of May or middle of July. Let’s be generous. Let’s give them a couple more months and see what happens to the housing market. It’s not looking great for the government at the moment, I must say. And my personal view is it’s going to get much worse. This uncertainty is the real killer. I mean, you’re not going to leverage up, you’re not going to borrow when there’s so much uncertainty about prices. And so I suspect there’ll be a huge drying up in transactions. And if you’re estate treasurers, you’d be very worried too because of all that stamp duty venue.
Caleb Bond:
Yeah. Right.
Adam Creighton:
Remember it’s all based on transactions.
Caleb Bond:
100%.
Adam Creighton:
It’s all based on transactions.
Caleb Bond:
100%.
Adam Creighton:
It’s very volatile.
Caleb Bond:
It is. Just so-
Adam Creighton:
So if that halves, states are really bugging.
Caleb Bond:
Yeah. Just quickly before we go, Adam, in the Middle East, of course, Donald Trump has now reinstated a blockade in the Strait of Hormuz. He wants to put a 20% charge a toll basically on ships going through the Strait of Hormuz. This is serious stuff. We know prices are bad enough as it is. What quickly would be the implications for Australia if this happens?
Adam Creighton:
Well, just greater prices, more inflation basically. We’ve already discussed the oil price i now back above $80, but if there’s a 20% tax on all tankers going through the Strait, of course that’s going to put up prices for all traded goods. So it’s not a positive thing. And do I think it’ll happen? Probably not. There’s a lot of bluster that comes out of the White House. Let’s just wait and see the next few weeks.
Caleb Bond:
Indeed. Adam Creighton, good to see you as always.
This transcript with Adam Creighton talking on Sharri Sky News Australia from 14 July 2026 has been edited for clarity.
