RBA holds fire on rate rise but mortgage belt already in recession

Treasurer Jim Chalmers in question time at Parliament House.

Jim Chalmers’ confidence that Australia will avoid a recession is not one necessarily shared by households.

At a macro level he may end up being right, thanks partly due to the migration intake.

But for anyone trying to pay off a home, it certainly doesn’t feel like it because the mortgage belt is already effectively in recession.

The central bank’s decision to pause rates for a second month in a row on Tuesday, will be a welcome reprieve for borrowers.

But it doesn’t ameliorate the longer-term pain that interest rates will continue to apply to mortgaged households.

The good news is that rates are once again on hold. The bad news is that they are going to stay at their current higher levels for a lot longer than will be tolerable for many.

And there is no guarantee that there won’t be a second sting in the inflation tail. Of the past two high inflation periods in Australia, neither were tamed in the first attempt.

This presents an obvious and ongoing political challenge for the prime minister and his treasurer.

The current and future state of the economy now has is one fully owned by the Albanese government. Inflation and Interest rates included.

This was evident as soon as the budget was handed down in May. There is little scope left to be blaming the previous administration for where it is now and where it may be headed.

Peter Dutton on Tuesday signalled to his party room that cost of living is the only political game in town. All other issues were window dressing.

Assuming this is right, the prime minister is at risk of losing an edge in the debate, if the government continues to be perceived as being too focused on other issues. The voice referendum being a prime example.

An emerging feature of Albanese’s leadership is an apparent reluctance by the prime minister to talk about the economy despite himself having coined the term ‘cost of living crisis’ during the election campaign.

This is being left to Chalmers alone it would seem with the Treasurer tasked with carrying the debate and prosecuting Labor’s cost of living case.

But Chalmers’ list of relief measures offers little respite for mortgage holders as a political constituency.

It is this group that the RBA is punishing and it is one the Coalition believes are Australia’s new forgotten people.

And the more they are ignored, the angrier they will become.

So far, the inflation problem has not followed Labor’s political timetable.

A year ago, it was expected that by now the country would already have been well over the worst of it.

And this may well have been the case had the RBA not backed off before Christmas and paused instead of pouncing on it then.

Now the elevated interest rate environment is expected to continue for another year at least, with the impacts of the current tightening cycle having yet to be full felt.

With Labor having once expected to have the worst behind it going into next year, cost of living may now come to dominate the entire life of the current parliament.