Inflation figures expose premiers

Higher-than-expected inflation figures in the March quarter further expose the fiscal incompetence of populist premiers who were quick to call for the Reserve Bank of Australia to start cutting official interest rates earlier this year. Had the RBA done so, today’s problems would be worse and the federal government’s policy options more limited.

As we noted at the time, good policy is to let an independent RBA make its decisions in the best interest of the nation, not the political fortunes of whoever may be in power at the time. The fact the call was made by Victorian Premier Jacinta Allan, whose state is on track to reach net debt of nearly $180bn by 2026, should be warning enough. Similarly with Queensland, a state that long ago surrendered the title of having the nation’s most prudently managed budget.

Rather than holding rates high unnecessarily, the latest figures show the RBA has been right to maintain a cautious watch on inflation. The RBA’s minutes from its March meeting said returning inflation to target remained the board’s highest priority and that it would take some time before it could have sufficient confidence that this would occur within a reasonable time frame. Wednesday’s CPI update is that inflation had accelerated, with consumer prices overall climbing by 1 per cent in the quarter, well up on 0.6 per cent in the three months to December, and above the 0.8 per cent predicted by economists.

Happily, the annual trend continues to be down but there is no room for complacency. Events in the US – where Federal Reserve chair Jerome Powell is pulling back expectations of a series of cash rate reductions this year – justify concerns that global interest rates might have to stay higher for longer. This is a message Australia must heed. Jim Chalmers was wisely restrained when premiers were seeking attention at the expense of the RBA in their call for immediate rate cuts earlier this year. The Treasurer must show the same restraint in the upcoming federal budget.

Cost of living remains the key priority for voters. But their interests will not be well served if the federal government succumbs to spending measures that only make the RBA’s inflation-busting task more difficult.