Inflation news delivers Olympic-sized sigh of relief

Treasurer Jim Chalmers says inflation in our economy is “stubborn and sticky”. Picture: John Gass

Aussie, Aussie, Aussie! Hold, hold, hold!

It would be a boilover if the Reserve Bank’s board raised official interest rates next week.

While it’s still white-knuckle time for borrowers, RBA officials and the Albanese government, the price growth trend is slightly more friend than enemy.

That collective sigh of relief, as good as gold.

The June quarter consumer price index rose by 1 per cent, in line with the economists’ consensus prediction and the RBA’s forecast of a 3.8 per cent headline annual inflation rate.

The central bank’s 13 cash rate hikes are doing their job to restrain spending, but inflation is still too high and a long way from the mandated sweet spot, in raw numbers and time.

Underlying annual inflation is now 3.9 per cent and has fallen for six consecutive quarters from a post-pandemic high of 6.8 per cent at the end of 2022.

Jim Chalmers has elevated Labor’s back-to-back budget surpluses to the winners’ dais. But there will be no three-peat.

Fiscal policy has helped the RBA quell inflation up until now, but going forward it will work in the opposite fashion as Canberra’s budget swings into an expected $28bn deficit this financial year off the back of a hefty rise in federal spending.

The states and territories are also adding to demand by loosening the purse strings, with power and transport cost relief and public works, as a couple of governments face elections in the coming year.

The economy has little, if any, growth pulse, with consumers down in the dumps; for many, although not all, it’s akin to recessionary times.

The stage three tax cuts and electricity rebates will cushion some of the living cost pain for younger people, who are also facing rising rents, insurance premiums and grocery costs.

The headline inflation figure is expected to ease over the final two quarters of the year, as the power bill relief massages the CPI, which will put political and public pressure on the central bank to begin cutting the cash rate.

Michele Bullock insists the RBA board will do “what is necessary” to ensure inflation is moving sustainably toward target.

As we’ve seen in other nations, where inflation and interest rates have been higher than those recorded here, the glide path to normal won’t be smooth.

“We need a lot to go our way if we are going to bring inflation back down to the 2-3 per cent target range,” the RBA governor said after the June policy meeting.

Just like at the Olympics, there are no sure bets and upsets at every turn.