The Inflation Deception

Here's what the Reserve Bank and Treasury officials will tell you: inflation is your fault. You spent too much. Too much demand chasing too few goods. The official line hasn't changed in forty years.

But look at the data. Real wages — adjusted for inflation — have been flat or falling for the majority of working households since 2008. So whose demand are we talking about? Who exactly has been splashing cash so recklessly that it required emergency interest rate intervention?

The answer they don't want in print: it wasn't household demand at all. It was asset speculation, corporate credit expansion, and government stimulus funnelled through financial channels — none of which shows up in your supermarket receipt, but all of which inflates the monetary base.

When COVID hit, the major logistics corporations declared force majeure on contracts, renegotiated rates, and consolidated market share as smaller competitors collapsed. Then they reported record profits. In a supply crisis. Simultaneously.

Supply chains didn't break because of bad luck. They broke because decades of "efficiency optimisation" — championed by consulting firms billing governments and corporations billions — had stripped out every redundancy. Just-in-time manufacturing. Zero buffer stock. Single-source suppliers. A system deliberately made brittle, by the people who get paid again to fix it when it snaps.

And here is the part that belongs in a criminal indictment: the fuel excise is a percentage tax. When the fuel price doubles, the government's tax revenue from fuel doubles automatically. Without passing any legislation. Without asking permission. The very inflation they claim to be fighting makes them richer in real time.

And food hasn't even left the farm yet. Every tractor that turns the soil runs on diesel. Every seeder, every irrigator pump, every harvester that cuts the crop — diesel. The grain gets auger-loaded into a diesel truck, taken to a diesel-powered facility, processed and packaged, then loaded onto another diesel truck. By the time your bread hits the supermarket shelf, diesel has touched it at least six times before transport even begins. A doubling of fuel prices isn't a transport problem — it's a food production cost problem first, and a transport problem second, and they compound on top of each other all the way to your trolley.

Cold chains — the refrigerated transport keeping your food safe — run on diesel. Construction runs on diesel. Steel, cement, fertiliser, plastics — all energy-intensive, all repriced when fuel moves. This is not a single sector problem. This is a whole-economy multiplier that the modelling departments understand perfectly and choose not to explain to the public.

This is perhaps the most audacious piece of the operation. The central bank raised interest rates — aggressively, repeatedly — to fight inflation. The theory: reduce demand, cool the economy, prices fall.

The problem: the inflation wasn't caused by excess demand. It was caused by supply chain collapse, fuel cost explosions, and corporate margin expansion. You cannot reduce the price of diesel by making mortgages more expensive. You cannot fix a broken supply chain by raising the cash rate. These are completely unrelated mechanisms.

What rate rises did achieve:

If inflation was genuinely supply-driven, the fixes are well understood. Release strategic reserves to buffer fuel shocks. Legislate against price gouging in essential goods. Implement windfall profit levies on sectors that expanded margins during the crisis. Invest in supply chain resilience — domestic production, redundant logistics, buffer stock.

Every one of these policies was proposed. Every one was rejected, delayed, watered down, or referred to a committee that reported after the crisis passed. The one policy that was implemented — raising interest rates — is the only tool that transfers money from mortgage holders and small businesses directly to the banking sector.

Ask yourself: of all the tools available, why was that the only one they reached for?

Here is the admission buried in plain sight. Central banks — the institutions charged with managing your economic stability — have exactly one lever. Interest rates. Up or down. That is the entire toolkit. There is no button for "fix the supply chain." There is no dial for "reduce the diesel price." There is no switch for "prevent corporations from expanding margins during a crisis."

There is only: make borrowing more expensive, and hope demand falls enough that prices stop rising.

This might be a reasonable instrument when inflation is genuinely caused by an overheated economy — too much money, too much spending, wages running ahead of productivity. In that scenario, cooling demand with higher rates has some logic. But when the cause of inflation is a physical supply shock — when diesel has doubled, when tractors and harvesters and refrigerated trucks and container ships all cost more to run, when the price of growing and moving food has structurally increased — raising interest rates does absolutely nothing to address the source.