Here is the uncomfortable truth Australians must now confront: the Reserve Bank does not have a good option. It only has a choice between bad options. And ordinary households will pay the price for either decision.
On Wednesday, the RBA raised the cash rate by another 25 basis points to 4.10 per cent. That figure matters less than what it signals. This was not a unanimous decision. Five board members voted yes; four voted no. It was the first split vote since July 2025. When a central bank divides this sharply, it is not because the path forward is clear. It is because the path forward is genuinely impossible.
Strip away the economic jargon and here is what happened: the RBA is choosing to make life harder for Australian households immediately in the hope of avoiding something worse later. For a couple with a $736,000 mortgage, that "harder" translates to an extra $118 per month, or $1,416 per year. Combined with February's rate rise, households are facing an additional $2,700 per year in mortgage costs in the first quarter alone. Regional farmers are being told their fuel could become unavailable. Small businesses that survived the pandemic are watching their borrowing costs spike.
Why is the RBA doing this? Because, as Governor Michele Bullock said when pressed directly, "if it's hard to get inflation down, then we're going to have to deal with that possibility" of recession. She was not being pessimistic. She was being honest. The central bank believes the only tool it has left is to raise the price of money until people and businesses stop spending, which eventually means some of them stop hiring, and some businesses stop operating. It is a controlled contraction. The alternative is letting inflation run, which destroys the purchasing power of savers, retirees on fixed incomes, and workers whose wages have not kept pace with prices.
The fairness of this choice deserves acknowledgment. The RBA board genuinely faced a dilemma with no clean resolution. Inflation was already too high before the Middle East war. Demand had been outstripping supply. And then came the external shock: Iranian and Israeli strikes on critical oil infrastructure. Petrol prices jumped from $1.69 to $2.19 per litre in weeks. Some analysts forecast prices could reach $3.50 per litre. Farmers warn that food prices could spike by 50 per cent. Treasury modelling suggests that if the war persists, inflation could reach 5 per cent, the highest in years.
But here is the harder question: why was Australia vulnerable to this external shock in the first place? Why did the government not have fiscal room to help households and farmers when global oil markets seized? The answer, which Treasurer Jim Chalmers partially acknowledged this week, is that inflation was not merely an external problem. Government spending had contributed to it. Before oil prices spiked, demand was already outstripping supply. The government had spent heavily to cushion the pandemic's blow, which is reasonable. But it did not fully remove that stimulus when the economic recovery began, which helped push inflation higher than it needed to be.
This matters because it shaped the choice Australians now face. A government with less pre-existing inflation could absorb an oil price shock more easily. It could let rates stay lower for longer. Instead, Australia's central bank has to front-load rate rises to prevent inflation expectations from becoming unanchored, even though those rate rises themselves will hurt growth and employment.
The RBA's split vote reflects this genuine complexity. Four members believed the risk of recession was too high to justify another hike. Five believed the risk of inflation spiralling was worse. Neither position was irrational. Neither position was wrong. That is precisely why the split matters. It shows that even the nation's economic experts cannot agree on which pain is preferable.
The fundamental problem is that this burden does not fall evenly. Australians who own their homes with mortgages face immediate pain from rate rises. Australians who rely on fixed incomes or savings get relief from higher interest returns, but only slowly. Workers face recession risk. Savers face inflation risk. Regional communities dependent on fuel-intensive industries face both. There is no policy outcome that does not hurt someone badly.
Voters deserve better than pretending otherwise. They deserve truth: that Australia's policy flexibility has been constrained by pre-existing inflation, that an external shock has made the situation worse, and that the RBA's rate hikes, while painful now, may be the least damaging option available. They also deserve to understand that this is not the central bank's failure. The RBA is doing what it was designed to do, controlling inflation. The real question is whether the fiscal authorities before this crisis hit should have left room for the central bank to operate with less urgency.
Consider this: if the government had reined in spending faster after the pandemic, inflation would have stayed lower, the RBA would have less to do now, and interest rates could be lower. Individual Australian households would have more money in their pockets. But that would have required choices and trade-offs that might have been unpopular at the time.
Instead, Australians now face those same trade-offs, only worse. Either accept higher rates and recession risk to kill inflation, or let inflation eat away purchasing power and force the RBA into an even sharper contraction later. The central bank has chosen the former. History will judge whether that was wise. But one thing is certain: the people paying the price are the ones least responsible for creating the problem.