Positive inflation data would put early federal election in play

Hopes of an interest-rate cut next month have boosted expectations Labor will call an early federal election to capitalise on the positive momentum.

Hopes of an interest-rate cut next month have boosted expectations Labor will call an early federal election to capitalise on the positive momentum, as Treasurer Jim Chalmers declares there is “cause for confidence” in the economy.

While the Albanese Government has continued to flail in the polls, multiple Labor sources said good economic news in the latest Consumer Price Index (CPI) data due to be released on Wednesday put an April polling day firmly in play.

Markets have forecast headline inflation will fall from 2.8 per cent to between 2.3 and 2.6 per cent, but the underlying figure — which removes more temporary price variables — will likely hover around 3.3 per cent, dividing economists over whether the Reserve Bank of Australia will drop the cash rate when its board meets in February.

Several Labor sources argued a rate cut next month and hopes of a second soon after would provide a significant electoral boost without the government having to potentially deliver a budget.

Treasurer Jim Chalmers says there is cause for confidence in the economy this year. Picture: NewsWire / John Gass

The election must be held by May 17, but can be called by Anthony Albanese at any time and the Prime Minister has been careful not to lock himself into a specific date.
Government MPs are divided on the merits of handing down the budget, scheduled for March 25, given current forecasts of a significant deficit of $26.9 billion for 2024-25.

The favoured early poll date is April 12, as this would avoid a clash with the West Australian state election and mean there was no budget in March.

Ahead of the latest inflation data for the three months to December being released on Wednesday, Mr Chalmers said he believed the figures would confirm Australia had made “substantial and sustained progress” in the fight against rising prices.

Without pre-empting the RBA decision, Mr Chalmers on Tuesday emphasised that an inflation figure with a two in front was within the board’s target range for a rate cut.

“Any progress on underlying inflation would be welcome as well,” he said.

Families are struggling with costs like childcare, where out-of-pocket expenses increased 12 per cent in the year to September. Picture: Getty Images

Mr Chalmers acknowledged households and businesses were still struggling despite the signs of improvement on inflation.

“We know that it’s not mission accomplished because people are still under pressure,” he said.

Inflation figures for the September quarter last year showed the out-of-pocket costs for early childhood education had gone up by 11 per cent in the previous 12 months.

Opposition leader Peter Dutton says Labor’s spending has kept inflation higher for longer. Picture: Brendan Radke

Opposition leader Peter Dutton said he wanted to see interest rates come down “as quickly as possible,” but blamed Labor for worsening inflation through increased spending.

“There are a lot of families at the moment who voted for Anthony Albanese believing good times were ahead, and (it) has been the complete opposite,” he said.

“That is why I think people are increasingly souring on the Prime Minister and his government.”

Betashares chief economist David Bassanese said the December quarter inflation figures would “make or break” the case for a February interest rate cut.

“Due to distortions caused by government cost-of-living relief measures the focus will likely be on the trimmed mean “underlying” measure of inflation rather than headline inflation,” he said.

Mr Dassanese said if this underlying figure was lower than forecast and dropped to 3.2 per cent, he would expect a rate cut next month.