From Iran to interest rates, our economy is rigged for the rich – Greg Jericho
The Reserve Bank thinks too few people are unemployed. If interest rates go up today, that's why
Greg Jericho is the Chief Economist at the Australia Institute and the Centre for Future Work, and a Walkley Award-winning columnist on economics and politics. Opinions expressed are those of the author alone.
If you ever wanted confirmation that the economy is rigged against ordinary people, you could do worse than to just observe the past few weeks.
When Israel was finally able to find someone dumb enough sitting in the White House to go to war with Iran the impact on oil prices was pretty instant:
The price rise brings to the fore just how rigged the economy is against people and weighted massively in favour of companies – particularly fossil fuel ones.
Here in Australia the overriding economic issue of the past couple of years has been inflation, for which workers have been blamed throughout.
People often get a bit confused about why the Reserve Bank raises interest rates. They themselves will talk about “excess demand” or a “tight labour market”. What they really mean is they think there are too few people who are unemployed.
A tight labour market means, in the RBA’s view, that there are too few people fighting for job vacancies, meaning employers have to pay higher wages to keep staff from leaving and attract people to come work for them.
It’s a theory that works nicely in an economics-textbook world where workers and employers have equal power, and not one where, even with unemployment at 4.1%, wage growth is at a very sustainable 3.4%.
And yet the RBA remains aghast and wants more unemployed.
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In the past month most speculators (or investors, if we wish to be kind) were betting that there would be no increase in interest rates at the RBA’s March meeting on Tuesday.
The unemployment figures that came out in February showing unemployment was steady at 4.1% bumped up the odds a tad, but not for long. The figures that showed inflation was steady at 3.8% again bumped the odds up for a day, but then they went back to a negligible 9% chance.
When Israel and the USA began bombing Iran, the odds fell to zero. Investors believed the RBA would look at the situation and think it best to wait and see, because a war in West Asia that affects shipping is not good for the global, or Australia’s, economy.
But then the Governor of the Reserve Bank, Michele Bullock, gave a speech at the Australian Financial Review’s annual business shindig on March 3. In her Q&A she was asked about the March meeting and she told the audience (and every speculator who was listening) that “it will be a live meeting. We have inflation at 3.8 per cent headline and we have unemployment at 4.1 tight”.
And just like that, the market priced in the odds of a rate rise in March at 27%.
Had anything changed? Nope. Was there new data? Nope.
But that was not all she said. She also talked about the impact of rate rises. She noted that “if the labour market remains tight and there’s continued pressure on inflation, then one of the things that’s going to happen is the unemployment rate will probably have to rise”.
It was nice to finally hear the RBA admit it. But Bullock then went on to attempt to make it all sound nice and fine because she did not want “100,000 people to lose their jobs”.
Instead, what she wanted was to make it harder for unemployed people and those entering the labour force – those who have just left school or uni, or who want to get back into the labour force after having children – to get work.
So that’s nice. Unless, you know, you happen to be one of those people who’s been told it’s for the good of the economy that you can’t get work.
The day after Bullock’s speech, the GDP figures came out showing the strongest growth for three years. The odds of a rate rise … went down.
The economic data suggested no need for a rate rise. Especially as the GDP figures showed that the real cost of labour fell, and company profits grew, in the last three months of 2025.
But the RBA was not to be denied. Speaking to Michelle Grattan, the Bank’s Deputy Governor, Andrew Hauser, said that “unemployment came in a bit below expectations… GDP growth came in at 2.6%... which is great news, of course, but it’s rather bigger than our 2% estimate of the capacity of the sustainable rate of growth in the economy.”
His comments sent speculators pricing in the likelihood of a rate rise at more than 60%.
Again, nothing had changed except the view that GDP growth, which largely came from increased profits, was enough of a reason to think raising rates was needed.
He also said something that was largely missed.
He noted that although Australia is a big oil importer, “we’re a net exporter of energy. And if you assume that the oil price is well correlated with the price of gas and other outputs that we export, there will be some positive demand effect for Australian exporters that offset some of those effects on activity.”
He’s right – when oil prices go up so too do gas prices. And given Australia is, along with Qatar and the USA, one of the biggest exporters of LNG, and given Qatar is currently blocked by Iran’s ongoing blockade of the Strait of Hormuz, life is good for Australian LNG exporters.
But we know that gas companies in Australia only employ around 27,000 people (for context, around 135,000 work in iron ore mining) so the increased “demand” will not be in work and wages, but in profits. Those same profits that spurred the recent increase in GDP which Houser is saying is too big and needs to be slowed.
We know the gas companies will make a massive profit bonanza out of this war, because it happened when Russia invaded Ukraine. They generated an estimated $112 billion in windfall profits from 2022 to 2025.
In that time, the revenue from the Petroleum Resource Rent Tax barely increased.
Investors know the oil crisis is good for gas companies:
So where are we?
An illegal war, which is causing oil prices to soar and will deliver a profits boom for gas companies, higher petrol prices for workers, and barely any extra tax revenue, is going to be used as a reason to raise interest rates to hurt those same households who are now having to pay higher prices for petrol and energy – delivering more profits to those same companies.
And throughout all of this the RBA remains focused on too few people being unemployed. Talking about the economy’s problems, both Bullock and Hauser raised low unemployment or the “tight” labour market.
Neither of them mentioned profits even once.
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