Labor can’t bank on ‘thanks’ from voters for a rate cut

Lower than expected inflation data buoyed prospects of an interest rate cut next month, but a resulting electoral boost for the Albanese Government is far from assured.

Labor MPs are breathing a sigh of relief as new lower than expected inflation data buoyed prospects of an interest rate cut next month, but a resulting electoral boost for the Albanese Government is far from assured.

At 2.4 per cent, headline inflation is now only 0.2 per cent higher than it was at the beginning of 2020 before the Covid-19 pandemic and well within the Reserve Bank’s target range for considering a rate cut.

Though as is now well-known, the board and economists have long since abandoned this measure as the only factor in considering a cut given Labor’s direct intervention through energy bill subsidies artificially, and temporarily, lowering the cost.

Treasurer Jim Chalmers. Picture: NewsWire / John Gass

Even so, Wednesday’s data showed “underlying” inflation – where the more volatile price variables are removed – was lower than forecast, though it remained just above the RBA’s target at 3.2 per cent.

Treasurer Jim Chalmers will still chalk these results up as a major win, but even if Labor can bank a February rate cut and the possibility of a second in either April, or May as they head into the election the government’s cost-of-living woes are far from over.

Mr Chalmers is right to acknowledge that improved economic figures do not mean Australian households and businesses aren’t hurting, and while bringing down inflation obviously provides greater relief over time – that’s not something Labor has much of.

With an election due by May 17 at the latest, the positive impact of one or even two interest rate drops by then will still be in its infancy.

Any benefits will be particularly slow to reach the one third of Australians who rent, and moderating mortgage pain will simply allow for households to focus their worries on other costs.

Nowhere will this be more evident than in energy prices.

The December quarter inflation data shows electricity dropped by a whopping 9.9 per cent – but this was driven almost entirely by temporary rebates.

In fact if the $300 subsidy from the federal government and some additional supports from states were excluded, the cost of electricity would have increased by 0.2 per cent in the final three months of last year.

With that assistance expiring in July, Labor still has some big cost-of-living concerns to tackle before it banks on voters’ “thanks” for a rate cut.