The budget won’t force up rates - not that that means they won’t go up again

Treasurer Jim Chalmers is right about his budget not being inflationary - but that doesn’t mean rates won’t go up further.

The budget is not going to increase inflation and force the Reserve Bank to whack us with more interest rate hikes.

Yes, the RBA is likely to hike rates again – maybe, even again and again - and maybe, even probably, starting at its next meeting in a month.

But any such rate hikes will have nothing – and I mean, nothing, nada, zip – to do with the budget.

Those economists who claim the opposite simply and embarrassingly beclown themselves.

They demonstrate both no awareness of arithmetic and, even more embarrassingly, of how the economy actually works.

Both somethings one would have thought were rather basic requirements of being an ‘economist’.

Now yes, there is a lot to criticise in the budget – and even more, the treasurer’s rhetoric. But these claims of pushing up inflation and interest rates are not even close to being one of them.

Indeed, Dr Jim is dead right in claiming that the handouts – in particular the ‘cheque’s in the mail’ to offset some of the cost lunacy of the Government’s ‘go insanely green’ war on coal and gas - will directly work to reduce inflation and, hopefully indirectly take pressure off interest rates.

First off, the various handouts – the energy rebate, Medicare bulk-billing, JobSeeker, and so on - add to just $13bn in this coming financial year.

That’s just simply not big enough to matter in a $2500bn economy.

Secondly, we do not have an old-fashioned, demand-driven inflation problem.

Petrol prices are not hovering below $2 because consumers are bidding to buy petrol in short supply. Food prices have not been driven by consumers cleaning out supermarket shelves.

The inflation we’ve had over the past year has been entirely supply-side driven.

Giving people at the lower-end of the income spectrum some extra spending power is not – trust me – going to send the prices of BMWs and Mercs through the roof.

But what the budget measures will do, and this is unambiguous and undeniable, is reduce the published inflation rate for 2023-24 by – Dr Jim claims – 0.75 per cent, from what would otherwise have been 4 per cent to 3.25 per cent.

You can quibble over the 0.75 per cent; and we will of course have to see what the actual inflation over next year turns out to be.

But it will be lower than it would otherwise have been; and this is no minor plus.

The biggest danger, the biggest risk to our future – setting aside the really big one: the climate cult lunacy, of course; literally personified in the twerpiest minister in the 122 years of Federation, the one and only Chris Bowen - is a wages breakout chasing higher inflation.

It is no small thing, if these Dr Jim handouts can mute some of the wages pressure by directly reducing the published inflation rate, albeit only starting with the September quarter numbers published at the end of October.

That’s actually pretty-to-profoundly important.

Those inflation numbers will immediately determine what the RBA does with rates at its November meeting on Cup Day.

But also feed into what happens to rates in the opening months of next year.

In sum, chill the hysteria.

Originally published as The budget won’t force up rates - not that that means they won’t go up again