We’re winning the inflation battle, but challenges lie ahead

People carry shopping bags while walking along Bourke Street Mall in Melbourne. Picture: NCA NewsWire / Diego Fedele

Wednesday’s monthly inflation numbers are a reminder that even though inflation is still too high, it continues to moderate in welcome ways.

That means the new year brings encouraging news that we have made significant progress since inflation peaked back in 2022. But cost of living pressures are still the defining challenge in our economy, so the fight against inflation remains the Albanese government’s highest priority.

It’s the motivating force behind our efforts to ease some of the pressures people are under; build a future made in Australia; strengthen Medicare; secure our country’s place in a world of churn and change; and lay better foundations for our workforce, industries, budget and economy.

This week’s CPI release shows annual inflation fell from 4.9 per cent in October last year to 4.3 per cent in November. This is now well below the 6.1 per cent we inherited at the time of the election. The new numbers also provide more evidence that our policies are helping to directly reduce inflation.

Monthly figures can be volatile so we don’t get carried away by one month’s data. But even on a quarterly basis, inflation is around half the peak left behind by our predecessors. Inflation doesn’t always moderate in a straight line, and the recent tick-up in Europe is a warning against complacency – as is the broader uncertainty in the global economy.

But even if we do see inflation zig-zag on its way down, the overall trend in Australia is now quite clear. Our plan to address inflationary pressures is helping, but the fight is far from over and we are a long way from prevailing.

We are coming at this challenge from every possible angle, deploying everything at our disposal. This starts with tens of billions of dollars in cost-of-living relief carefully calibrated to put downward pressure on inflation, not make the problem worse.

By working with the states to roll out electricity bill relief, we are taking some of the sting out of power prices – confirmed again in Wednesday’s figures.

By making early childhood education cheaper we are making it easier for parents to work and earn more if they choose to. By funding 58 new Medicare Urgent Care Clinics, strengthening bulk billing and making medicines cheaper we are helping Australians with out-of-pocket health costs. By boosting income support payments and rent assistance we are targeting relief to those who need it most.

By getting wages moving again, we are making it easier to make ends meet, provide for loved ones and get ahead.

Jim Chalmers

New Treasury analysis shows the fastest overall wages growth in nearly 15 years is even faster among the lowest paid, supported by our approach to the minimum wage and care economy. And Australian Bureau of Statistics data has showed that inflation would be much higher without our policies on electricity rebates, cheaper childcare, and rent assistance.

This is the kind of assistance the Liberals and Nationals voted against, and the wages growth they don’t support. If they had their way, inflation would be even higher, wages growth would be lower, and Australians would be trying to climb out of an even deeper hole. The mindless negativity we see from Peter Dutton and Angus Taylor is no substitute for economic credibility. After almost two years they have still got no costed policies, no alternatives, and no idea.

No wonder quarterly and monthly inflation were both much higher and wages growth much weaker when they were in government. This combination meant that when we came to office, real wages were declining at a steeper rate – down by 3.4 per cent in the June quarter of 2022.

The government is turning this around. We’ve now seen two consecutive quarters of real wages growth and Treasury is forecasting annual real wages growth this year.

Our approach to cost-of-­living relief and better wages growth is part of a broader economic strategy designed to help people now while setting our country up for the long term. By investing in areas like housing, energy, data and digital, workforce participation and human capital, we are expanding capacity and laying the foundations for sustainable growth.

By repairing the budget and delivering the first surplus in 15 years, we are taking pressure off inflation, saving tens of billions of dollars in interest, and ensuring our fiscal strategy is part of the solution, not part of the problem.

Our responsible approach to the budget has been recognised by global institutions, ratings agencies and economists, and would be unrecognisable to our predecessors. By reviewing our grocery code and competition settings, and by working with the ACCC to consider further price monitoring in supermarkets, we are looking to boost competition and put downward pressure on prices.

By recalibrating our $120bn ­infrastructure pipeline we are ­delivering projects in ways that improve living standards, boost productivity and don’t compound capacity constraints. By reforming our migration system we are building a more productive, dynamic economy and ensuring ­migration serves our national economic interests.

Each part of this plan – ease the costs of living; boost housing supply; repair our budget; refresh competition settings; recalibrate infrastructure; and reform migration – plays a role in fighting ­inflation and strengthening our economy over time.

Collectively, we have made progress since inflation peaked in 2022, but we know there is much more work to do and no shortage of other challenges ahead.

Higher interest rates are biting, conflicts impact the global outlook, and communities are being rocked by severe weather.

But we enter 2024 from a ­position of genuine economic strength: faster jobs growth than any major advanced economy; over 700,000 jobs created on our watch; the fastest wages growth in almost 15 years; a second surplus in sight. And a plan that is helping, not hampering, a fight against inflation that is far from over, despite the welcome moderation we saw in the numbers again this week.

Jim Chalmers is the federal Treasurer of Australia.