RBA says its job is made harder by Aussies’ ‘fundamental’ lack of understanding on inflation

Public misperceptions around how interest rates and inflation intersect as well as how and what the Reserve Bank actually does could be damaging the nation’s economy.The RBA says is has found “fundamental gaps” in Aussies’ understanding of how monetary policy works, particularly around how interest rates affect inflation. A three-phase survey of 9,000 Australians between February 2025 and March 2026 looked at how the public experience and understand the economy, along with public perceptions of the bank.The RBA said findings largely show the public “generally understands how interest rates affect economic activity” but are not across the effect rates have on inflation.“Only 25% of respondents assessed correctly that higher interest rates would ultimately lead to lower inflation, while more than half indicated that higher interest rates would lead to higher inflation,” it stated.“This finding shows that most respondents expect interest rates to have the opposite effect on inflation to central bank economists.”Three-in-four Australians incorrectly assume higher interest rates increase the inflation in the economy. Picture: GettyIt’s a concerning finding for the central bank, which sa...