It’s complicated – the Australian economy, that is. Indeed, it’s in a very unusual spot. Over the past 40 years, there has only really been one previous episode that looks relatively similar at a macro level. This makes it difficult for casual observers to keep track and changes the nature of what policymakers ought to be doing.

Let me explain. Although growth has slowed and demand has weakened, largely because of the rise in interest rates, the economy is still operating beyond its sustainable capacity, which means inflation is still too high. This is because its supply side is very weak too.