Is it right to use interest rates to reduce demand, when Australia's real economic issue is a lack of supply - of skills and infrastructure?

There is a crying need for a bit of innovative thinking among those who manage our economy. The reserve Bank has taken the interest rate sledge hammer to our economy more than once too often already.

This is especially true in this particular episode of economic overheating.

A lot of inflationary pressures are coming from areas outside the reach of domestic interest rate policy, such as global movements in oil prices, food prices and commodity prices. These rises plus our housing shortage and the health needs of an ageing population are driving internal inflation, to be sure.

This idea of shortages is the key. Interest rates can only affect domestic demand. Australia's core domestic contribution to inflation is linked more to lack of supply than excess demand. We haven't invested enough in skills and infrastructure and when resources of any kind get scare, prices rise.