Australia's cash rate is now at the highest it's been since the global financial crisis in late 2008 and many are feeling the pain.
With growing anxiety about the economy, whether the war in Iran will continue to drive up inflation, and the soaring cost of living, some Australians are wondering whether there are other ways to curb inflation than the "blunt instrument" of interest rate hikes.
The push for alternatives is also being fuelled by federal politicians including Greens leader David Shoebridge and independent senator David Pocock, who's calling for a "rethink on how we tackle inflation".
Pocock is pushing for a Senate inquiry to explore alternatives.
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Australia has used interest rates to manage inflation since the 1990s, with the Reserve Bank of Australia (RBA) aiming to keep it between 2 and 3 per cent. Lifting rates is intended to reduce house prices and household spending, and affects the exchange rate by reducing domestic spending.
But some say it's not effective in the current environment.
The left-leaning Australia Institute think tank says the main driver of inflation today is soaring fuel prices prompted by the war in Iran and the closure of the Strait of Hormuz — something which the RBA has no control over.
"It doesn't matter whether they put them up as they did to 4.85 per cent, they put them up to 5 per cent, they put them up to 10 per cent, they put them up to 20 per cent — that is going to do nothing to open the Strait of Hormuz," Australia Institute senior economist Matt Grudnoff said in a recent podcast.
"They're not connected in any way."
He also pointed to the inflationary impact of the growth of AI data centres, something the RBA has acknowledged. Demand for workers, material and land, as well as water and electricity, is coming at a time when the economy is operating at close to capacity.
"These two big forces that are pushing inflation, Australian interest rates will do nothing to impact them," Grudnoff said.
Pocock has put forward terms of reference for a Senate inquiry to look into alternatives to rate hikes. It hasn't yet been agreed to by parliament.
"There has to be a better way, and I've had so many Canberrans and people across the country writing and saying, 'hang on, this is madness, we have to find a better way to find a few more levers to pull and control inflation'," he told ABC News last week.
Greens leader David Shoebridge is also pushing for alternatives, saying: "It's time for a different approach, one that actually takes into account the real drivers of inflation: AI data centres, illegal wars and the 1 per cent."
There are a number of levers available, including targeted tax increases, cutting government spending or lifting compulsory super contributions.
Raising the GST would be another option to stem consumption, but experts say it won't be as effective because it doesn't impact asset prices or the exchange rate. Then there's the hurdle of getting it cleared by various levels of state and federal parliaments, and regulatory monitoring to ensure businesses aren't profiteering.
"It sounds nice in theory, but it would probably be very impractical to put into play in reality," macroeconomist Luke Hartigan from the University of Sydney told SBS News.
Another option is the super guarantee — by lifting compulsory contributions .
"What it means is that people will put more money into their savings account ... if we wanted to take some heat out of the economy," Hartigan said.
"Again, it only affects the one channel of monetary policy, that cash rate, the cash flow channel; it won't affect the exchange rate."
He also said this alternative may not be fair on younger people who are more likely renting.
"The other thing is we don't know what will happen or how much we need people's incomes to go up or down," Hartigan said.
Another option is targeted tax increases on certain populations — for example, older homeowners who may be shielded from rate hikes. That too, Hartigan says, would only affect cash flow rather than exchange rate or asset prices.
And it's also politically difficult and would need the government to make an unpopular decision.
The political parties also have ideas. The Liberal Party argues curbing government spending would tackle inflation.
Diana Mousina, deputy chief economist at AMP, says cutting government spending would also come at a cost.
She said returning government spending to the historical average of around 23 per cent of GDP, compared to the current 28 per cent, would need around $135 billion in spending cuts.
"That would be an enormous fiscal adjustment," she wrote in a recent briefing paper.
"Cutting spending can mean fewer government services, lower payments or reduced programs, while higher taxes leave households with less disposable income.
"The pressure may fall on different parts of the economy than it does with higher interest rates, but somebody still has to spend less."
Meanwhile, Shoebridge has proposed national rent controls, halting the construction of new data centres and hiking company taxes.
Treasures Jim Chalmers has framed the government's changes to negative gearing, capital gains taxes and trusts as moves against financial inequality, whilst also acknowledging Australian households are hurting.
Mousina says there is no simple policy that allows us to bring inflation down without some economic cost.
"If inflation reflects demand running ahead of the economy's capacity to supply goods and services, ultimately demand needs to slow or supply needs to increase."
Hartigan says interest rates remain the most effective way of managing inflation.
"We don't like them, but they're better than the alternative, unfortunately," Hartigan said.
"We need to take some medicine. It's going to be bad medicine, so there's no easy way out of fixing inflation.
"There's no painless way out, unfortunately."
