Tom Minear: Inflation surge makes cost of living the big election issue

The revelation inflation is at its highest level in 20 years is a threat to Scott Morrison — and the soaring cost of living is now a political tightrope he and Albanese must walk in the weeks ahead.

For an election that was expected to be fought on cost of living, the issue has surprisingly barely rated in a mention through the first two and a half weeks of the campaign.

The revelation on Wednesday that inflation is now at the highest level in 20 years changes that. It means everything is getting more expensive and interest rates will be going up – and that is an existential threat to the Morrison government.

Their best defence to avoid blame for the hip-pocket pain families are feeling is that soaring inflation is driven by overseas factors. They argue it is lower here than in similar economies, with Scott Morrison even pulling out a graph in his press conference to illustrate the point.

While the comparison reflects well on the government’s handling of the economy during the pandemic, it means nothing to those struggling to make ends meet.

That’s why the government’s secondary defence is that things would be worse under Labor.

Everything is getting more expensive and interest rates will be going up and that is an existential threat to the Morrison government.

The Coalition has a longstanding electoral advantage on economic management, but polling suggests that has ebbed away in areas where cost of living pressures are already biting.

This is the opportunity Anthony Albanese and his team are yet to exploit. Labor argues its childcare, energy and industrial relations policies will reduce the strain on households and lift wages. That may be so, but their plan feels piecemeal. Do they have a headline-grabbing idea up their sleeves that will tilt the election in their direction?

Perhaps they think the Reserve Bank will do that for them.

Rates are going up to tackle inflation, in another hit to household budgets, and we will know next Tuesday whether that happens in a campaign for the first time since 2007 – which was a nail in the coffin for John Howard’s government.

The Coalition has sought to offset the pain by halving the fuel excise, adding $420 to the low and middle income tax offset, and delivering $250 cash payments to six million welfare recipients – which just happened to flow from Wednesday.

Labor argues its childcare, energy and industrial relations policies will reduce the strain on households and lift wages but their plan feels piecemeal. Picture: Toby Zerna

But this relief dries up in six months, even though economists expect the Reserve Bank will keep lifting rates well into next year. Canstar forecast that series of likely increases would add almost $700 to the monthly repayments of someone who bought an $800,000 home with a 20 per cent deposit.

A quirk of the Covid recession was many households were able to bolster their savings and get ahead on their mortgages. Not everyone was so lucky, while others leapt into the housing market for the first time with interest rates at historic lows. They will be stretched to the limit as the banks hike up their repayments.

This is the political tightrope Morrison and Albanese will walk over the next three and a half weeks. They have to frame the problem in a way that shows only they can be trusted to fix it. It would help if either side had a cohesive plan to do just that.