Standby for an unpaid ad! It comes from the Reserve Bank of Australia and I’m providing free publicity for something the central bank is selling — fear!

Scaring those with loans is the first target to reduce spending, but if the RBA can scare more people to prevent other Aussies paying high prices and keeping inflation up, then the central bank has done its job.

In the economics game, it’s called jawboning. This is where the RBA says we’re planning on raising rates if inflation doesn’t fall. Just saying these scary words might stop lots of people spending. If that’s the result, the RBA might avoid actually raising rates.

It's sneaky but if it means there’ll be no more rate rises, then the economic slowdown that has to be coming, might be exactly that — a slowdown rather than a recession. The RBA is shooting for the double-play of less inflation and no recession. If that happens, new boss Michele Bullock will be hailed as a genius and be more fondly remembered than her predecessor Dr Phil Lowe.

Michele will also get the joy of cutting rates, which will be fondly remembered by those with home loans. All she has to get is a nice run of economic data that says interest rates have done their job — inflation in the 2% to 3% band — and rates can come down.

The AFR was also recruited to do ‘ads’ for the RBA with a story about Dr Chris Kent, who made a speech that virtually said that rate rises are working but if it looks like inflation isn’t going to hit the 2%-3% band, we’ll raise again.

The International Monetary Fund has shown we pay more as a percentage of income to be a homeowner than any other advanced country. Before rate rises started in May last year, we used 7% of disposable income to cover home loan repayments. Now it’s 10%. And this will go higher as more and more borrowers on low fixed rate loans roll on to higher variable rate loans.

Part of the reason why 12 rate rises haven’t KO’d the economy is because we built up about $300 billion in savings during the pandemic. Some of that came about because people kept paying their normal interest repayments when rates were cut.

The bottom line is that we’re heading in the right direction for no more rate rises but data and wage rises will be critically important. It comes as the Albanese Government will raise the minimum pay of skilled foreign workers on temporary visas, which business is worried will starve them of workers.

The move will attract workers to areas such as aged care and childcare, where there are significant shortages, but the RBA would be worried about the potential inflationary effects of the move. “The government significantly increased the base pay of skilled migrants in July, from $53,900 to $70,000, to turn the tap off on temporary, cheap labour flooding the economy and contributing to an underclass of vulnerable, exploited workers. It had the dual aim of curbing the net migration level, which was 454,000 in the year to March,” the SMH’s Angus Thompson reported today. “The migration reforms will create a three-tiered system for temporary workers, which includes a lower-income stream for frontline industries such as aged care; a core pathway for in-demand skills, to which the temporary skilled migration income threshold or TSMIT applies; and a specialist stream for highly sought-after and highly paid professionals.”

The Council of Small Business Organisations opposes indexing because it will price out a number of employers. It says the Government should resist this until some time has passed to see how the higher pay levels impact employers.

Waiting seems sensible, with high interest rates slowing the economy, raising costs and hurting profits. And I dare say Dr Kent would prefer to see less additions to the overall wage cost bill, given the RBA wants to get inflation down to the 2-3% band. And everyone with a home loan does as well!