Australians are struggling to make ends meet; this is not an economy that needs more rate hikes.

The June quarter inflation figures released yesterday brought relief to those worried the Reserve Bank might raise rates next week. However, the data on retail spending showed that, regardless of inflation trends, Australians are struggling.

While inflation figures dominate the headlines, retail trade figures are equally important.

When considering inflation, the crucial question is: what’s driving it?

If it’s driven by excess demand, such as significant pay rises and abundant disposable income leading to a surge in shopping and spending, then interest rate hikes can help temper it.

However, if inflation is driven by supply-side issues, global prices, government excises, or companies raising prices to protect or increase their profits, then interest rate hikes will have minimal impact and only harm the economy by forcing households to cut back on spending.

Therefore, it’s essential to examine both inflation figures and household behavior.