If the Reserve Bank doesn’t refrain from raising rates next week and we end up in a recession, those responsible should be pilloried for being incompetent. It must be conceded that getting the cash rate of interest right to beat down inflation is hard, but that’s the job Dr Phil Lowe and his well-credentialled board are paid to do.

It's a hard job for Dr Phil and his board for these historically significant reasons. I trotted these out on Monday, but they bear repeating:

1. The Coronavirus pandemic.
2. The lockdown of the Australian and world economy.
3. The crash of the stock market as we locked down.
4. JobKeeper and the Schwarzenegger-style stimulus thrown at economies to save jobs, businesses and people’s very minds!
5. The local and global inflation all this created.
6. The cash rate of interest taken to 0.1% to get people to borrow to avoid a Great Depression.
7. The low interest rates that encouraged people to borrow on fixed rates, such that now 40% of loans are fixed, when once it averaged around 15%. This means Dr Phil’s monetary policy is less effective because when he raises rates, those on fixed rates say: “So, what? I’m going overseas, despite the high cost of travel!”
8. After inflation hit 7.8%, unions are asking for catch-up pay rises, which makes the fight against inflation a lot harder for Dr Phil than many of his predecessors. That includes the likes of Bernie Fraser, who copped it in 1989 with high inflation, the “recession we had to have” and Paul Keating as his Treasurer and later his PM!
9. The current Labor Government is the most supportive for wage rises than most governments in recent times.
10. The economy he’s trying to work out and steer now has a new curve ball, in workers wanting to work from home.
11. Younger workers today are very different from previous generations and are less likely to play ball with their bosses, which must be having a productivity effect, along with this work-from-home ‘demand’.
12. A potential US banking crisis, which raised ghosts of the financial meltdown we saw in the global financial crisis (GFC).
13. He even had to cope with the economic implications of the China-Trump wars that put a fair bit of economic and market volatility into his work.

So why should the RBA stop what I think has become rate hike madness?

Yesterday, inflation for the year to May in Australia came in at 5.6%. This is down from 6.8% in April and is a big drop from the high of 8.4% we saw in December.

The SMH’s Rachel Clun talked to Moody’s Analytics economist Harry Murphy Cruise, who was blunt on what he sees. “The economy is slowing, spending is going sideways, firms are cutting their hiring plans and, most importantly, inflation is tracking lower,” he said. “This should lock in a pause at the RBA’s next meeting in July.”

This chart’s blue line is screaming that inflation is on the slide, which doesn’t surprise me after seeing petrol now selling for $1.70, when last November we were forking out around $2 a litre.

AMP’s deputy chief economist Diana Mousina said the 5.6% rise was way lower than the 6.1% that economists had been predicting. “There are clear signs that inflation is slowing and there will be further downside in coming months (we expect annual inflation to be around 4% over the year to December 2023), however clearly the pace of inflation is too high and well above the RBA’s target 2-3% target band,” she said.

Mousina says the RBA could be worried that the underlying rate, which takes out volatile price items, is still at 6.4%. The board could be looking at wage rises and thinking these won’t be good for future inflation.

Against that, the mortgage cliff is set to throw a huge spanner into the economy’s works and is bound to crush spending by the one million households the RBA says will be experiencing a huge hike in their monthly home loan repayments.

There are economists who think there will be one more rate rise in August after we see the quarterly CPI, but no one, including me, knows how the ‘cliff’ will kill spending and price rises.

I asked Diana to look at inflation over the past two months in isolation and then annualise it. She explained there are a lot of issues with annualising one- or two-month figures but even when she allowed for seasonal factors, the inflation rate she came up with was a low 3%!

That’s why a pause on rate rises next week looks like a sensible (if not a reasonable) move from Dr Phil and his board, who I hope kill inflation without creating a recession.