The mistake could prove catastrophic for Treasurer Jim Chalmers

Did Treasurer Jim Chalmers make the catastrophic mistake of ‘forcing’ new Reserve Bank governor Michele Bullock to hike interest rates on Melbourne Cup Day?

Federal Treasurer Jim Chalmers. Picture: Martin Ollman

Did Treasurer Jim Chalmers make the catastrophic mistake of “forcing” new Reserve Bank governor Michele Bullock to hike interest rates on Melbourne Cup Day into an economy that had already slowed sharply and, arguably, had already moved into recession in per-capita terms?

Certainly, catastrophic for him, in political terms, and also for his management of the economy? And not exactly great for the rest of us, either?

That is the huge – and I mean humungous – question that leaps out of the September quarter GDP numbers.

Any way you cut these very detailed and very complex numbers up, they tell us an unambiguous story of an economy that is paddling at best.

An economy that was only being held up by government subsidies on electricity, broader

government spending, the massive infrastructure builds, and the out-of-control migration pouring additional spending into the economy.

Even with all those boosts, the economy barely grew – just 0.2 per cent in the September quarter, making just 0.6 per cent for the six months, an annualised 1.2 per cent growth rate.

And in per capita – per person – terms, it actually shrank by 0.5 per cent in the quarter and by 0.3 per cent over the year.

RBA governor Michele Bullock. Picture: Aaron Francis

Yes, that meant we had two successive quarters of negative per-capita GDP growth – meeting the definition of a so-called technical per capita recession.

As I’ve always argued that’s a stupid so-called definition. A recession is about reality – job losses and businesses going broke.

We’ve got the second, but not – yet – the first, thanks to the government spend and the migration.

But we are clearly headed in that direction. And that takes me back to my opening question; Two questions actually.

Did the Treasurer’s ham-fisted and very public “instruction to Bullock” ahead of the Cup Day meeting “not to hike” almost force her to hike?

Something that is now in the process of catastrophically coming back to hit him and the government (and the rest of us) in both economic and political terms?

She and her board were tossing up between a hike and a continued pause.

With the “surprise” September quarter inflation boost, did the Treasurer’s intervention then “seal the deal”?

And the second question: was the hike a mistake?

The GDP numbers – given that the September quarter inflation kick-up was driven by known one-off factors – confirm that the hike was at least unnecessary and arguably a mistake.

I wrote ahead of the Cup Day meeting that the RBA should not and would not hike. I proved clearly wrong on the second, but was I right on the first?

Ahead of this week’s meeting, I explained how – again, when you look at the numbers after inflation and in per-head terms – retail spending had gone sharply negative over the October year.

Yes, there’s been a one-off surge – bit only on goods, in shops and online – with Black Friday.

But let’s see how consumer spending now likely sags through December and January, especially after the Cup Day hike.

It is now not inconceivable that come February, the RBA should actually have to be considering reversing that hike.