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Alan Kohler: RBA should let inflation run its course

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Alan Kohler commenting on inflation, demand, and reserve bank policy. Interesting read!

Here’s a wild idea for mainstream economists to smile at condescendingly: How about the Reserve Bank stands back and lets this inflation episode run its course.

There’s a wise old saying that the best cure for high prices is high prices, since they naturally reduce demand on their own, but central bankers are trained to scoff at that idea.

Unlike previous episodes, this inflation is NOT caused by galloping consumer demand or runaway wages, which is what higher interest rates are designed to suppress, but by two colossal stupidities that are entirely impervious to the Reserve Bank.

Read the rest of the article The New Daily.

Thinking

Why does Kohler think the Reserve Bank should stand back and let inflation run its course?

How might high prices be the cure for high prices? Explain in terms of demand.