Postkiwi

The Australian Reserve Bank announced yesterday a further increase in interest rates, taking us up a quarter of a percent to 6%. Which means we’ll be getting a letter from the bank shortly informing us that our monthly payments need to increase again. Last time this happened I didn’t bother changing the automatic payment, figuring that it would need to change again shortly. I was right. So I’m just putting more and more into the mortgage via BPay.

We’re being told in the Australian press that the inflation increase is due to the cost of oil/petrol and the cost of bananas. Bananas are around $10 a kilogram in the supermarkets - have been since Cyclone Larry hit North Queensland. But I’d say that even without banana shortages we’d be facing this interest rate rise. It’s an international phenomenon this week.

Megan McCardle at Instapundit says that high oil prices are a big part of this. But she says there’s another part of the story.

“The entrance of China (and to a lesser extent India) into the global labour market has effectively held down prices in developed countries, even when those economies are running at full capacity. Economic bottlenecks and problems with the financial system in China are making it harder for China to effectively export deflation (deflation is the opposition of inflation), which means consumer prices may rise still further.

That, in turn, is forcing central banks to raise interest rates even when the economy isn’t that strong. Both the European Central Bank and the Bank of England did so today, and while the former was all-but-foreordained, the latter move was a big surprise to everyone.”

So what do you think? How inter-connected are we?