Housing lies at the heart of the RBA’s inflation problem

And this is just one example of how housing sits at the centre of many of Bullock’s big problems.

As she noted in her statement on Tuesday, shockingly poor investment in new dwellings threatened to weigh on already slowing economic growth.

But low housing starts are also feeding directly through to higher house prices (which the RBA worries will push up consumption via a wealth effect) and to surging rents, which are a key component of the services inflation that the RBA is particularly concerned about.

More and better government action could help to alleviate the inflationary pressures from housing. But instead, the federal government is exacerbating the problem by turbocharging immigration, which is currently running at an annualised rate of 500,000, and which HSBC chief economist Paul Bloxham has rightly described as a true shock to the Australian economy.

And federal and state governments are further crowding out housing investment – and putting upwards pressure on prices for labour and materials – by unleashing a wave of infrastructure spending at what is arguably the wrong time.

“Both state and federal governments are doing little to rein in demand,” Bassanese notes. “In fact, the ongoing public infrastructure boom – while needed from a long-run structural perspective is poorly timed from a cyclical point of view given today’s high inflation and labour shortages.”

Westpac chief executive Peter King says that alongside strong immigration, infrastructure investment and the housing affordability crisis, economic demand will continue to be stoked by the energy transition, which will require tens of billions of dollars in capital, and vast amounts of resources, over the coming decades.

These four forces will act as tailwinds for economic demand over the coming years and, in King’s view, keep rates higher for longer.

But for Bullock, these four horsemen of inflation also raise two important questions.

Firstly, do governments need to follow the advice of the International Monetary Fund and ease back on infrastructure spending, at least temporarily, to take some inflationary heat out of the economy? A reassessment of immigration levels could also be warranted, although the persistent tightness in the labour market may make this unhelpful.

The second question is how long Bullock will need to keep rates at these levels for. Economists are divided on whether a December hike will be needed, but perhaps the more interesting question is when rate cuts will arrive. Barclays sees cuts only beginning in the fourth quarter of 2024.

Much will depend on the labour market. The RBA updated its forecast for unemployment on Tuesday slightly, and is predicting a gradual rise in the unemployment rate from 3.8 per cent to 4.5 per cent.

If the labour market remains tight, the scope for cuts will be limited. But if RBA’s latest rate rise – and the lagged effect of those already delivered – hits the jobs market harder than expected, Bullock may need to act sooner than the market thinks.

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