What is inflation and why do interest rates keep rising?

Alexander Downer talks inflation, government spending and your mortgage, recorded before the Melbourne Cup Day rate call.The former Liberal leader and Australia’s longest-serving foreign minister has seen it all. The highs and lows. So what does he prescribe for the future based on the past? Interest rates have gone up four times this year, to 4.60 per cent. Inflation hit 4.3 per cent in the year to September. On Melbourne Cup Day, the Reserve Bank decides whether to go again. Here’s how it works. When prices rise faster than the Reserve Bank’s 2-3 per cent target, it lifts the cash rate. Borrowing costs more, households and businesses spend less, and price rises slow. The question is what’s pushing prices up in the first place. He says it’s government spending, state and federal. The Reserve Bank says demand from both government and the private sector is running ahead of what the economy can supply, and higher oil prices from the Middle East conflict are adding to it. Karl asks Downer what that means for families, whether we just get used to higher rates, and how we get out of it. How rate rises are meant to bring prices down The interest bill on government debt, and what it could pay for instead Why the inflation target is 2-3 per cent, not zero What happens when a country can’t borrow cheaply any moreWhat families can do right now