Labor sweats on budget fix as voters feel under the pump on prices

RBA governor Michele Bullock has been holding fire on monetary policy since raising the cash rate to 4.35 per cent on Melbourne Cup day in 2023. Picture: NCA NewsWire / Jeremy Piper

Michele Bullock and Jim Chalmers want inflation to return to being a sleeper issue. That’s not going to happen in 2024.

The squeeze on living costs looks like it’s easing on the statistician’s scorecard, but it’s not slipping off the pollsters’ radar.

The headline consumer price index of 3.6 per cent in the March quarter is well down on its late 2022 peak of 7.8 per cent, but inflation still has a pulse, especially for must-have items like rents, insurance, medicine and education.

“People are under the pump, but we’re making progress,” the Treasurer said on Wednesday after conceding inflation was “still too high”.

Digging into the numbers, we see underlying inflation is stuck at 4 per cent, well above the central bank’s target zone.

Housing costs – not the cost of servicing a mortgage but building a new home or renting – rose by 5.8 per cent in the year to March. According to David Bassanese from Betashares, CPI housing costs were averaging 2.8 per cent growth in the pre-pandemic years.

The mortgage belt looks at those metrics and makes a wish: If only interest costs were running at that rate!

An election is due in just over a year, with Anthony Albanese’s odds for another win at the mercy of whether the RBA can bring down its cash rate from the highlands of 4.35 per cent ahead of the poll. Labor insists the May budget won’t be adding to cost pressures or that it will disrupt the monetary authorities’ plans.

Ahead of the annual fiscal statement, Chalmers is processing and producing a lot of content: global growth is a worry, as is homegrown inflation, but the messaging focus is going to be making stuff in Australia. Huh?

The tax cuts flowing from July 1, the fiscal equivalent of a couple of cuts in official interest rates, will help with household costs.

An easing of monetary policy by the RBA board is possible this year, but “disinflation” looks like a slow morning train rolling into Central after a long weekend.

Economists are pushing back their timing for the first cash rate cut to very late this year, or even 2025, given global risks to supply chains and continued strength of the labour market won’t help to keep cost pressures in check.

Some in the dismal discipline even see a slight chance of one more RBA rate hike, but that’s a long shot.

Inflation is also sticky in America and the market herd is sitting in the dust, waiting for a clearer round-up call from US Federal Reserve chair Jerome Powell.

For now, the RBA board is holding its fire – ruling nothing in or out – and its tongue.

The central bank governor has not spoken in public since her media conference just over five weeks ago and is not scheduled to speak until after the board’s monetary policy meeting on May 7.

It’s a pragmatic approach during a policy pause, but also one where any communication takes on more weight, and risks a stampede among those who place big bets for a living.