Chalmers claims ‘substantial progress’ on inflation but Taylor rejects ‘soft landing’

Australian households are within reach of desperately needed mortgage relief as lower inflation figures raise the prospects of an interest rate cut in February.

Australian households are within reach of desperately needed mortgage relief as lower inflation figures raise the prospects of an interest rate cut in February, while Labor accepts it’s still not “mission accomplished” on higher prices.

Markets are now pricing in a 75 per cent chance of the Reserve Bank announcing a rate cut when the board meets next month after inflation dropped to 2.4 per cent in the 12 months to December, according to new Australian Bureau of Statistics data released on Wednesday.

The headline Consumer Price Index (CPI) figure was lower than what many economists had forecast, as was the “underlying” rate, which excludes more volatile price extremes and still fell to 3.2 per cent.

Despite setting a target rate of two to three per cent for cutting the cash rate, the RBA board has been focused on the underlying figure amid concerns the Albanese government’s temporary energy bill relief subsidies were artificially impacting the headline rate.

Treasurer Jim Chalmers insisted the worst of the inflation crisis was well and truly over, but acknowledged there were still Australian households and businesses struggling with cost of living pressures.

“We don’t pretend that it’s mission accomplished on inflation, but we are making very substantial progress,” he said.

Treasurer Jim Chalmers. Picture: NewsWire/Nadir Kinani

Shadow Treasurer Angus Taylor. Picture: NewsWire/Martin Ollman

Coalition treasury spokesman Angus Taylor rejected Mr Chalmers’ suggestion the economy was headed for a “soft landing” out of the inflation crisis, arguing households were still struggling due to higher prices over the past three years and 12 rate hikes contributing to an extra $50,000 on the average mortgage repayment.

“Australians don’t see a soft landing here,” he said.

“Of course Australians want to see a rate cut, but they also want to see a standard of living increase.”

The prospect of a rate cut in February has heightened speculation Labor will seek to capitalise on the positive momentum and call the federal election as early as March or April.

Mr Chalmers said he was “working towards” handing down a fourth federal budget scheduled for March 25, but could not promise it would be delivered as the timing of the looming election was “a decision for the Prime Minister”.

Anthony Albanese refused to be drawn on whether the inflation numbers had figured into his thinking around the timing of the next federal election, which must be held by May 17.

The Prime Minister also declined to answer if his government was considering extending the energy bill relief currently due to end in July.

“We’ll make policy announcements when we make them,” he said.

In the last three months of 2024, electricity dropped by 9.9 per cent – but this was driven almost entirely by temporary rebates. 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.

The government remains well short of its 2022 election commitment to reduce power bills by an average of $275 by this year based on 2021 levels.

Originally published as Chalmers claims ‘substantial progress’ on inflation but Taylor rejects ‘soft landing’