Quick, someone book an aircraft carrier and put the MISSION ACCOMPLISHED banner up high.
Can we get Jim Chalmers in a pic jogging and drinking from a water flask that says BACK IN THE BAND?
Michele Bullock, what are you waiting for?
In normal times, news that annual headline inflation had fallen to 2.8 per cent would set off chatter in the markets and animate those who trade in political dark arts.
For expectations would be that the Reserve Bank would soon cut its cash rate of 4.35 per cent, the restrictive level it’s been at for the past year.
With inflation sitting within the RBA’s 2-3 per cent target zone, home borrowers would be demanding an easing in monetary policy as early as next week, when the central bank’s board meets.
Not so fast – disinflation is happening, and that’s to be welcomed, but we’re not there yet.
Underlying inflation, although down by almost half from its peak two years ago, is taking longer to yield to the RBA’s interest rate squeeze as too many dollars in the economy are chasing the same amount of available goods and services.
In the September quarter, the annual rate of trimmed mean inflation – a measure which takes out the most volatile items – was 3.5 per cent, a decrease from 4 per cent in June.
While goods inflation has eased to an annual 1.4 per cent, price growth of services is sticky and too high.
Services inflation was 4.6 per cent in the year to September, up from 4.5 per cent in June, with higher prices for rents, insurance and child care the main drivers.
Naturally, this persistence worries the RBA board
Big spending state governments are putting upward pressure on prices, through public works, elevated numbers of bureaucrats and a lot more capital and labour in the care sector they fund.
That may not be the “main game” of inflation, as the RBA chief said after flipping her testimony to the Feds, but public demand is not helping to bring a better balance between supply and demand in the economy.
The roots of the inflation problem are found to a large extent in the pandemic’s cheap money from the central bank and loose budgeting by Canberra and the states.
The post-Covid reopening, amid exuberance and broken supply chains, saw headline inflation jump to 7.8 per cent by the end of 2022.
The Treasurer and state custodians have massaged down the headline rate through energy bill relief to families.
That’s real money, and welcomed by families, but that political ploy won’t cut it in the RBA board room.
“Headline inflation is expected to fall further temporarily, as a result of federal and state cost-of-living relief,” the minutes of last month’s meeting said.
“However, our current forecasts do not see inflation returning sustainably to target until 2026.”
The pain for borrowers will persist, but the numbers are falling into place for a rate cut early next year.
Park the big ship and keep the drinks on ice.
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