The Reserve Bank of Australia must increase interest rates today to keep inflation in check.

Figures released last week showing annual consumer price inflation at a two-decade high of 5.1 per cent, and other indicators that price pressures continue to build, mean there’s an overwhelming case to lift the cash rate target from the pandemic emergency low of 0.1 per cent. A gradual return to more normal interest rate settings is in Australia’s interests.

The RBA should begin that process now or risk being forced into more aggressive increases to combat inflation down the track.

The RBA board will have understandable concerns about moving the cash rate during a federal election campaign. It is more than 11 years since the last official interest rate increase in Australia; many with a mortgage have never had to confront the prospect of higher borrowing costs.

But having official interest rates near zero is no longer justified when unemployment is 4 per cent and inflation over 5 per cent (and rising). History shows the longer high inflation persists, the more consumer expectations of inflation rise and that makes it even harder to get price growth back down again.

“The RBA no longer has time on its side and should move now and do so decisively,” says AMP’s chief economist, Dr Shane Oliver.

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Given the strong arguments supporting a lift in interest rates, and the persistent debate about household cost of living pressures, the public anticipates action. If the RBA fails to hike rates today many will assume the delay is due to the election, and that will damage the bank’s hard-won reputation for independence.

The RBA strongly asserted that independence in November 2007 when its board opted to lift rates during a federal election campaign. It is crucial for the central bank’s standing that the current board do that again today.