Petrol prices falling a little. Diesel remains elevated.

Why did the RBA take the narrow path, and why is it now talking tough? A balancing clause that treats jobs as a short-run trade-off against inflation. Two definitions of full employment. And a NAIRU estimate in the low 4s that was always wishful. Three errors, all pointing the same way. Trimmed mean inflation persistent at 3.6 per cent is the bill. markthegraph.blogspot.com/20…

Agree the NAIRU is the benchmark, and we both called estimates in the low 4s wishful at the time. I’m not arguing for strict inflation targeting either. The board should diagnose what’s driving inflation and respond accordingly. Full employment, properly defined as the NAIRU, is the goal. Price stability is how you achieve and sustain it. Where I differ is on treating jobs as a short-run trade-off against inflation. That’s what the current balancing clause invites, and it’s how Australian inflation stayed above target for so long (ignoring government subsidy fiddles at the edges). And the government pushed hard for that "balanced" reading. In 2024 the Treasurer said rate rises had smashed the economy and framed the goal as fighting inflation without smashing growth. Bullock held the line that year, warning entrenched inflation would cost jobs later. But the pressure, the balancing clause and a wishful NAIRU estimate all pointed the same way.

Agreed, the 2–3% target hasn’t changed. What changed is how hard the RBA pushes toward it when unemployment is rising. A dual mandate builds in a short-run conflict: every step toward the inflation target costs jobs, and the jobs leg tells the bank to ease off. Equal weighting means the bank splits the difference. That’s the narrow path. The destination stayed the same. The slow speed of travel was set by the mandate. The mandate was built to fix a 2016–19 problem, when policy was too tight. More recently policy has been too loose, and the mandate is part of the problem, not the solution. It’s a big part of why Australia still had an inflation problem before the Iran war. And it’s why the RBA will now need to push unemployment above its sustainable rate to finish the job.

Independence covers the instrument, not the objective. The government set the objective, and it got it wrong. The jobs-inflation trade-off only exists in the short run, but the short run is where an equal mandate does its damage. It invites the bank to compromise: go slow, protect jobs, look for a narrow path, let inflation sit a little high. Then expectations drift, and the only way back is a recession. The jobs you protected at the start are the jobs you lose at the end. That’s a misaligned objective, and the government hog-tied the bank to it.

The trade-off between jobs and inflation only exists in the short run. Sitting on 3.6% doesn’t buy lasting jobs. It raises inflation expectations, and if those become entrenched, breaking them takes a recession. That’s what happened from the mid-70s to the early 90s. Each recession left more people in long-term unemployment, and the jobless rate ratcheted higher. Small moves early avoid the big ones later. The 1990s show why that matters. Inflation can fall fast, but the labour market takes years to heal. Unemployment peaked near 11% after the early-90s recession and took most of the decade to recover. Once the RBA began targeting inflation, it moved early and decisively, as in 1994, and the jobs recovery held. Doing nothing looks like the job-friendly option. It isn’t. It just defers the cost and makes it bigger.

The data centre water panic misses the point. Sydney Water's 250 ML/day by 2035 is a ceiling, not a forecast. It assumes every proposed centre gets built and every one runs evaporative cooling towers. Today data centres use about 0.7% of Sydney's supply. Industry expects about 1.9% by 2030. Water use is a design choice. Dry coolers and recycled water cut it to almost nothing. The price is extra electricity. And electricity is the binding constraint. The 4.4 GW Sydney pipeline, running flat out, would lift NSW demand roughly by about half. It needs firm power around the clock, just as coal retires. A renewables PPA won't keep the servers running at 7pm on a still winter night. The policy question is pricing water and power properly so operators make the trade-off sensibly. And deciding who pays for the grid upgrades before households do.

If non-tradeable and services inflation was lower, the RBA might be able to ignore an oil supply shock, but with domestic demand higher, it is much harder to look through the supply shock.