How Inflation Disrupts Planning And What Businesses Can Do

Prices move, rates rise, and suddenly every decision feels harder. We sit down with Professor Uwe Dulleck, Executive Dean at the University of Canberra, to unpack what inflation really is, why central banks lean on interest rates, and how businesses can navigate a world where money is tighter and planning matters more than ever. No jargon, just clear frameworks you can use to make smarter calls.

We start by demystifying inflation: when demand outpaces supply, prices climb. Professor Dulleck explains how rate hikes curb spending by shifting cash toward savings and lifting debt costs, while also acknowledging global forces—supply chains, geopolitics, technology—that push prices higher regardless of local behavior. Then we get to the heart of sound strategy: predictability. A credible 2–3 percent inflation target anchors expectations, giving owners and managers the certainty to hire, invest, and price without constant guesswork. When expectations drift, uncertainty taxes every choice, from wages to capital spending.

The conversation turns practical fast. What do rising rates do to margins, hiring, and growth plans? Who bears the brunt—households, small firms, large organisations—and who might quietly benefit? We break down why fixed vs variable debt matters, how to balance short and long maturities, and the trade-offs of refinancing or hedging. We also examine policy alternatives: the pitfalls of wage and price controls, the role of fiscal tightening in draining excess demand, and when targeted regulation might address windfall rents without choking adaptation.

For owners weighing price rises, we offer a simple guide: let your market and demand elasticity lead. Matching headline inflation can protect perception if your value holds, but aggressive moves risk losing customers. Communicate clearly, add visible value where you can, and consider fewer, well-timed adjustments. Finally, we map resilience steps for the months ahead: stress test cash flow, streamline costs, prioritise profitable lines, and invest in productivity so you can do more with less. When inflation cools and rates settle, disciplined operators will be ready to grow.

If this conversation helps you see the road ahead with more clarity, follow the show, share it with a colleague, and leave a quick review—what pricing or debt move are you considering next?

Transcript

SPEAKER_00 0:15

Hello and welcome to the Canberra Business Podcast. I'm Greg Harford from the Canberra Business Chamber, and today we're talking interest rates and inflation with Professor Uver Dalek, the Executive Dean of the Faculty of Business, Government and Law at the University of Canberra. Uva, welcome to the podcast.

SPEAKER_01 0:31

Thanks, Greg. I'm looking forward to our conversation.

What Inflation Really Measures

SPEAKER_00 0:34

Now, obviously, inflation and interest rates are really topical at the moment. The reserve banks just hiked rates by 25 basis points, which is which is putting up the cost of borrowing. But let's start at the beginning. What is inflation? I mean, uh, you know, if you've studied economics, um, it's perhaps clear, but I think there's some people out there who don't necessarily understand what it is.

SPEAKER_01 0:56

Thanks, Greg, for having me to talk about that. Um, I find it actually quite interesting. It reminds me of my starting out at university and uh studying economics. Um I've I found actually the most helpful explanation is uh that inflation shows us how prices increase. And prices increase when um there is more money for stuff than we have stuff. So um what do I mean? The goods that are produced, the services that are produced, um people want to sell them, businesses want to sell them. Uh and if there is more demand, then there are goods, then prices go up. And uh that's what we capture by inflation. So, what does that have to do with the central bank and interest rates? Um, I find it's really helpful, and this is like I think most of the listeners uh remember that uh people had money in their pockets and carry cash around. It's helpful to keep that picture, um, how to think about money. There's a certain amount of money around, and there's a certain amount of goods around. And if you have more money than goods, prices will tend to go up. If there's less money than goods, then prices may come down. That is rare. But that's the type of way how the uh central bank thinks about uh its interest rate policy.

SPEAKER_00 2:17

Now, interest rates here in Australia um are moving perhaps slightly differently to how they are in many other parts of the world. But certainly over the last couple of years, one of the things we've heard about is that the costs of purchasing goods from overseas, particularly in the retail sector, have been increasing. That's that's not the fault of uh the Australian consumer or the Australian economy, is it? Yet yet that helps drive prices as well.

Why Predictable Inflation Matters

SPEAKER_01 2:44

Yeah. No, without question, um I think what we see is uh if if costs for for products go up, prices can go up. So there's there's cost push inflation, so to say. Um what the central bank tries to do is is to affect demand, right? So um that's the only thing that you can um uh do with uh uh interest rates, what the central bank can affect, right? And and what like again, I get back to this picture. It's quite important to know how much money people have for consumption purposes in their pockets. If interest rates go up, you may save more, so you stop um uh buying things, but if if you have a uh a mortgage uh or you have debt to repay, it reduces the amount of money you can spend, right? So it is always an effect on reducing demand when you see the the type of uh interest rate increases. And you're completely right. Some of the drivers of inflation are um external to even Australia, um, and with the current uh uncertainty that we see in the world, when we think about supply chains, when we think about what happens in the US, um uh where a lot of uh ways to run businesses became harder, not just for our Canberra businesses, but for businesses in the world, um, that will lead to higher prices and and that will show up as inflation. Um, you know, we could start thinking about why do we worry that much about inflation?

SPEAKER_00 4:16

Well, that's always because because you know, obviously um, you know, inflation is a is a measure of pricing prices increasing. Um but why does that matter to the government? Um central banks are very focused on it, have been for the last 20 or 30 years probably. Um but certainly back in the 70s we had much higher inflation. Um, you know, what what's the what's the driver?

SPEAKER_01 4:37

Yeah. So we you already talked about uh or we had we touched upon the problem with uncertainty in the economy for businesses, uh, for everyone. And I feel that's uh a big thing why inflation is problematic. So think about uh how you plan, and we talked about that, uh, when interest rates uh sorry, when inflation rates are higher, you will think about how can I increase the prices running my business, right, as a business owner. Um and the same is true for, for example, um uh workers or employees of companies, right? If if everything becomes 10% more expensive in a year's time, then um you may want to have 10% more salaries as well, which is a problem for businesses. Um it's not a problem if everything could be easily predicted, right? If you know this happens every year, you just you know increase by these percentage points. And there's a lot of evidence that says the higher the inflation rates, the higher the uncertainty around inflation as well. So what the central bank tries to do, and that's why we have these brackets where the central bank says they want between two and three percent uh inflation to make it very predictable, and and research shows that this is a range that uh is somehow allows for enough adoption of prices in the economy, but at the same time it gives the level of certainty so that businesses can plan best. That would be for me the easiest way to explain why it is important to keep inflation in check. We don't like too much uncertainty, it stops engaging in new activities, uh, it stops growing new opportunities, um, and and um uh yep, that's the reason why it's important to keep uh inflation under control.

SPEAKER_00 6:26

So, from a from a business point of view, um we've seen an inc an increase in interest rates uh recently, um, and there's talk of more in some quarters over the coming year. Um what what do you see as being the big impacts of that on business? Obviously, if consumers are spending less, um that has an impact on business, but many businesses are highly leveraged to um you know with borrowings to support their the growth of their businesses, um, it must have a huge impact on uh those businesses as well.

SPEAKER_01 6:58

Yeah, no, I I think that's the the big uh challenge. Um, and again, I can only bring it back to um um we need to think about how businesses can plan, right? Uh I think the challenge is that we we had for very long term uh very low interest rates globally, but also in Australia. Um and for that reason, um maybe some investments that were made in the past are bigger than you would make them now. Um and we can't avoid that, right? You talked about how the environment changed, how how the global uh conditions changed, um how consumer demand changed because people after COVID felt different, um consumer sentiment may be different and so on. Uh so what we try to do, or what the I feel the central bank tries to do, is to get as much certainty in there so that people can make plans that work. But it's no question if interest rates go up, we will see less investment by businesses, and there are a couple of challenges with respect to post investments that uh have been made.

SPEAKER_00 8:12

And at the same time, um you've got demand from employees for higher wages to match the costs of uh inflation over the previous period. So, I mean, is it right to sort of surmise that um businesses might find themselves quite squeezed here with higher costs on one hand, reduced demand for their services on the other, um, and uh less ability to borrow?

SPEAKER_01 8:36

Uh without question, I um I think what we see is, and and that's what what businesses hear from their employees and from their consumers, that everywhere we do have a little bit of uh that squeeze. Um you talked about the 70s before, uh, and and um like I grew up in Germany. Maybe you can hear that in my accent. Um, and then there was actually a very active debate there of leading politicians saying, look, I prefer to have 2% more economic activity, more employment, uh, than less inflation. So there was this time, but we got then very high inflation rates, which led in the long term to to less activity and less less certainty. It's not an easy choice. Uh, I think the the main part is to uh try to keep artificially interest rates low in the long term leads to more uncertainty and even worse pain to come. Um, in many ways, Australia has been relatively lucky in the last two crises that we didn't have too strong effects from uh higher interest rates and whatever galloping uh inflation.

Are Controls And Caps Sensible

SPEAKER_00 9:50

Are there alternatives to hiking interest rates to deal with inflation? Um, you know, certainly back in the 70s in New Zealand there were price controls brought in and wage controls that were brought in by the government to sort of manage things very centrally. We've had um uh discussion here in Australia about whether um the prices of some products should be should be regulated or controlled by government. Um does does that make any sense at all from an economic point of view?

SPEAKER_01 10:18

So so the economist in me um uh uh shivers a little bit when when you hear that. What we want is that that uh prices can uh be set relatively freely because things change, right? We live in and particularly in the current um economic and business climate, uh, there's dramatic change around technologies. We talk about AI, um, we have the political uncertainties. So there's a lot of things that need to change in the economy or the the economy needs to adapt. The more we regulate prices, the less we can do that in a business or economic efficiently, efficient way, right? Um, so I I'm I'm really cautious uh with some of the controls. The only way where I see uh controls could be done better is if we feel there are huge windfall profits or uh or or windfall um rents uh that that are applied, then maybe regulation um could stop that to some extent, but I would be very, very cautious because it's hard to identify that. I think there's a lot of uh politics that gets in there, and I think we know that politics is usually not very helpful for business and economic activity.

SPEAKER_00 11:39

So are interest rates always the answer to inflation? And and are there situations where increasing interest rates aren't actually going to solve those underlying inflationary pressures? And what do you do then? Yeah.

Debt, Money Creation, And Fiscal Levers

SPEAKER_01 11:50

So I'm I'll I'll take you back to this idea about the the amount of money that goes around and um um and how that relates to inflation and and changes in prices. Very simple as a as a as a as a theoretical concept or as a way to think about that. And one thing that you really try to do, and and we could start thinking about could we do that, because you talked about government activity, is um that actually a lot of this money is created by what we call debt. So if you borrow money from uh from the bank to buy something, if a business borrows money or a household borrows money to buy something, they get money out of the bank, and somebody else who has saved money still feels he he owns money that he could spend, right? So there is money creation from borrowing money. Um so there's actually a push for that. If if people borrow more, um there will be more money floating around. So one way you could go about, and that's you what you sometimes hear, is that government could dramatically reduce its own debt, right? That could be by reducing expenditure, um, but it could be by increasing taxes, right? I'm not saying that's what I advocate for, but there are other ways to take money, cash out of um out of the economy that that would have this type of effect. The question is, what is the impact that it would have on overall economic activity, on economic growth, on well-being in the economy. Uh, but that would be the other way to go about that. How we just pay down debt. If we get lots of people to pay down debt, money disappears from the economy, it has the same effect as the increase of interest rates.

Who Bears The Pain And Who Benefits

SPEAKER_00 13:44

So, on the question of government spending, though, there's been a lot of commentary in the uh discussion around interest rates recently to the effect that uh some of our inflationary problem is driven by excessive spending by the Commonwealth. Um the Reserve Bank's been very keen to sort of stay out of that debate. I heard the Deputy Governor this week say that you know a dollar of demand is the same whether it's uh government spending or private spending. Um but what's what's your view on that?

SPEAKER_01 14:14

So I would side with a uh uh with the governor there. Um but it's it's this like for the simple reason of this very simple idea that I tried to give you before that we need to think about how much money is floating around. But if we look more at um at the data that's out there, and um some of you may have seen a recent piece by my colleagues Stephen Bartos and John Hawkins on that, um government spending in Australia, in my eyes, is not completely out of historical uh levels. It's very, very average, so to say, uh, the share of government spending of overall economic activity. And what I find more important, again, this goes back to what we just discussed with um where does money come from, and the level of debt actually determines how much money is around in the economy. Uh, in general, the government had in the last two years, maybe out of luck, but it did have uh small budget surpluses, right, for different reasons. So it has reduced debt, right? In that sense, it has taken some money out of the economy. Um not a major effect, but I I wouldn't say that um at the moment the the level of of um economic activity the government shows uh has a strong inflationary effect. I still do feel, and we talked about that, that external parameters um are bigger drivers in that regard.

Practical Advice On Debt And Pricing

SPEAKER_00 15:48

So that's that's interesting. And and I wonder too about the impacts of the interest rate decisions on both the government, public sector, and and the private sector, because um it would seem to me that government has a much greater ability to sort of suck up higher interest rates and perhaps pay a little bit more for its debt than uh your average consumer or or small business. Do you do you think that's fair, that that the impact is felt much more by consumers and small businesses, and indeed larger businesses than by the public sector?

SPEAKER_01 16:19

Well, I I think you the where you have a good point is the larger businesses or larger an organization is the easier it is to absorb that, right? We know that interest rates will not be high forever. Historically, there have been periods with high interest rates and others with low interest rates. So it's it's like over time, you know, we will have some sort of long-term interest rate level, and it's much easier if if you have uh um less limitations to borrow to ride these waves out. So, in that sense, government has a huge advantage. Um, it is interesting, I think, in Australia, that a lot of private debt uh has flexible interest rates, so we actually quickly feel that. Government has the advantage to borrow more when interest rates are low and take long-term instruments to borrow. Um, and um uh if interest rates are higher, they can take short-term uh loans and therefore wait until they come uh become low again. But private business can do that as well. Households and small business can't do that, right? So it's it's the question of what type of business we are talking about. I wouldn't say in general um that it's that much easier for government uh to borrow money. But you know, that depends on how you look at it. We do have an independent central bank, so they would still take the the interest rates. If you move away from central bank uh in independence, and we see that in some countries, then yes, government can almost print money, but that's not Australia.

SPEAKER_00 17:58

Government can borrow, though, from offshore, right? So um is it is it true to say that uh perhaps they don't feel the full impact of Australian rates if they're borrowing out of another market where interest rates are on the on the downward slide?

SPEAKER_01 18:13

Well, you could borrow internationally as a private person as well, right? We had the mortgages um um uh uh uh from from other countries. You just buy in uh uh exchange rate risks, and that's the same for government uh as it is for um for private businesses. So I'm not sure that helps much, um, particularly in the current situation where we don't know um what happens internationally.

SPEAKER_00 18:43

Yeah, and you're right, exchange rates obviously play into that uh significantly as well. Um are there are there businesses out there do you think that are benefiting from higher interest rates or or could could benefit um over the next few months?

SPEAKER_01 18:57

Um that's a that's a good question. Um like in in in many ways um there will be businesses that benefit, right? Um I think if you uh like we we hear that a little bit, and and that's maybe the um uh the story that you sometimes see if uh retirees benefit from higher interest rates because they are usually having savings and living from interest rate income seen as as low risk. Similarly, there will be businesses out there that that have assets that are much less dependent on uh on borrowing, are self-financed. Uh, and for them, competition will get weaker, which is helpful for them, right? There will be more um uh uh more opportunities for them just because competition is slightly weaker and and less able to be a fierce type of competition.

SPEAKER_00 19:55

Have you got any advice for businesses that might be looking at the the current uncertainty and the interest rate landscape? Um what what should businesses be thinking about as they make their decisions?

SPEAKER_01 20:08

That is uh is a good question. Um like I take the the easy way out as a as a dean of a faculty of business government law, think about studying and uh work with some of my colleagues about best strategies, but that's maybe not what you want to hear. Um like I would feel one important part of advice, and I think um uh the business chamber is maybe a good point of contact, is to look actually at the debt structures that you have, right? What I just talked about to have long-term and short-term loans, uh, how you have organized um your debt, uh in my eyes is uh is important, and and it is important to actually work with support networks to make sure that that uh the way your business is set up, uh you you take out as much risk as possible and um uh you know get your debt in order to minimize the cost and the impact of these interest rate rises.

SPEAKER_00 21:12

Now there will be some business owners out there perhaps who are looking at the fact that interest uh sorry inflation is running at sort of 3.5%, 3.8%, depending on which indicator you're looking at, and thinking, oh, that means I should be putting my prices up by the same amount. Is that a reasonable um uh reasonable thing to do?

SPEAKER_01 21:30

Um I don't know whether it's reasonable. I think yeah, I would always recommend, but this is me as a maybe too much as a theoretical economist, and I wouldn't actually tell people how to run their business there. But as an economist, I would say you should look at what is your market environment, right? It doesn't help to um to put up your prices in line with the inflation rate if you already struggle to attract customers. I think if you're going strong. With respect to your customers, to just be roughly in line with inflation rate, at least people will not perceive your product as becoming incredibly expensive. But it does depend a lot on how elastic the demand for you for your product is. Sorry for the technical term. So how quickly or how strongly your buyers react to changes in prices. We publish inflation rates, not we. The central bank publish inflation's rate, and we talk about them a lot so that people know what this reference value is, and you you can plan a little bit for that. It's again we talk about uncertainty and uncertainty. So if you go much higher, I think people will say that is odd. If you are roughly in this area, then I feel people will say, yep, that's what I roughly would expect. Um and and you know keep your price a little bit longer stable. People will perceive it as somebody who's trying to help with this type of pressure. So have a look at your market. Uh, I think that's the best advice I would give.

SPEAKER_00 23:04

Does putting your prices up though help perpetuate a cycle of inflation?

SPEAKER_01 23:10

Well, yes, in in the sense that uh it will be captured by the ABS and and the Reserve Bank will take that in into account. If you um if people, if businesses keep their prices, um, increase them by less than the inflation rate, it will reduce um the inflation rate. The big problem is it's a a drop um in a sea of water, each individual um uh price change. So so yes, I think at one point in time we can need to get to that. It's the same discussion about um when we hit these very high inflation rates and what happens with wages. Can we really adapt to that perfectly? Then we don't get out of this spiral of uh inflation.

Wrap Up And Follow Us

SPEAKER_00 23:53

So excellent. Urva Dalek, uh the executive dean of the Faculty of Business, Government and Law at the University of Canberra, uh, and a good friend of the business chamber. Thank you so much for joining me on the Canberra Business Podcast to talk about inflation and interest rates.

SPEAKER_01 24:07

Thank you, Greg.

SPEAKER_00 24:08

Um, this is the Canberra Business Podcast. Don't forget to follow us on your favourite podcast platform for future episodes, and I'll catch you next time.