RBA boss’ thinly veiled warning to pollies on rates

Reserve Bank of Australia Governor Michele Bullock defied Treasurer Jim Chalmers, who has stepped up pressure on the RBA in recent weeks, by deciding against a rate cut.

Any politician who uses consumer price index data due out on Wednesday to claim inflation is tamed will be pulling your leg, according to the boss of the Reserve Bank of Australia.

Governor Michele Bullock delivered the thinly veiled warning after the RBA diverged from the US, England, Canada and New Zealand by deciding against a rate cut – specifically because of ongoing concern that inflation may not yet be on a sustainable path to its preferred band of two to three per cent.

In doing so, Ms Bullock defied Treasurer Jim Chalmers, who has stepped up pressure on the RBA in recent weeks, declaring rate rises are “smashing” the economy.

Governor Michele Bullock delivered the thinly veiled warning after the RBA diverged from the US, England, Canada and New Zealand by deciding against a rate cut. Picture: NewsWire / John Appleyard

One of his Labor predecessors, Wayne Swan, went even earlier this month, saying the Albanese “government is doing a lot to bring down inflation, but the Reserve Bank is punching itself in the face. It’s counter-productive and it’s not good economic policy.”

Ms Bullock on Tuesday declined to respond to Mr Swan’s attack, however she did shred the claim that Labor is lowering core inflation.

She was speaking ahead of the release of August CPI figures on Wednesday, which could show headline inflation as low as 2.7 per cent – because of a temporary and artificial reduction in the price of electricity via $3.5 billion worth of taxpayer-funded rebates from Canberra.

“With tomorrow’s monthly CPI … we will expect to see the cost of living relief coming into play. And now what that’s going to do is that’s going to lower energy prices,” Ms Bullock told reporters in Sydney.

“The point I would make is that if tomorrow we get an inflation number which has got a two in front of it, so it’s back in the band, that doesn’t mean that we’ve got inflation under control.

“It doesn’t mean that inflation is sustainably back within the band. It just means it’s back there at the moment. So I think what I want to draw out … is that we need to see that there’s a consistent trend down to the band, and it’s going to stay in the band.”

Treasurer Jim Chalmers has stepped up pressure on the RBA in recent weeks, declaring rate rises are “smashing” the economy. Picture: NewsWire / Glenn Campbell

In Toowoomba, Mr Chalmers said “when the monthly inflation data is released, whether that monthly inflation data is in the low threes or the high twos, it will show that inflation has halved since we came to office.”

He added that inflation is “definitely trending downwards.”

Shadow Treasurer Angus Taylor said: “The government is attempting to manipulate headline inflation, and the Reserve Bank is seeing straight through government manipulation, the government needs to focus on doing the real job, which is to bring core inflation down.”

Ms Bullock gave three reasons to explain why the RBA wasn’t following other central banks and cutting rates.

The first was that “we didn’t go up as far as everyone else,” she said. Also, “our disinflation hasn’t been as marked.” Lastly, “our employment gains have held up,” Ms Bullock said, so there isn’t the same need to support the job market by loosening monetary policy.

Most economists believe a rate cut is unlikely before February.

Money markets have been forecasting the cash rate to drop from 4.35 per cent to 3.35 per cent by this time next year.