Cautious Jim Chalmers treading a fine line

Treasurer Jim Chalmers says Labor’s three-point economic plan is working but wants to lower inflation faster. Picture: Tertius Pickard / NCA NewsWire

Jim Chalmers treads a fine line in claiming credit for the steady fall in inflation at a time when Australians are being smashed by soaring energy, grocery, rent, insurance and mortgage costs.

Falling inflation means a likely reprieve for mortgage-holders when the Reserve Bank board meets next Tuesday but at 6 per cent it remains well above the RBA’s 2-3 per cent consumer price index target.

The Treasurer – who has blamed sticky inflation on Russia’s invasion of Ukraine and the Coalition’s mismanagement of the economy – on Wednesday said Labor’s three-point plan and “our collective efforts” have helped moderate spiralling consumer costs.

Lower inflation is good news for Australia but households and businesses must brace for a bumpy road ahead. De-accelerating growth will push the nation towards the brink of recession, historically low unemployment rates will rise and a slowdown in China will heap pressure on global markets and supply chains.

While the RBA’s actions and the end of Covid disruptions have positively impacted goods inflation, services inflation is still on the rise. CPI data shows the biggest drivers of inflation were rents (which recorded the strongest quarterly rise since 1988), international travel and accommodation, financial services and new home costs.

Retail spending data on Friday is the final piece of the cash rate puzzle ahead of Philip Lowe’s second-last RBA board meeting before deputy governor Michele Bullock takes over in September. If the RBA has gone too far, as some fear, Bullock will have to consider rate cuts in balancing monetary and fiscal policies as the economy contracts.

Anthony Albanese and Treasurer Jim Chalmers meet with Michele Bullock in Canberra. Picture: Martin Ollman/NCA NewsWire

Minutes from the central bank’s July meeting raised concerns that a dozen rate hikes over the past year have imposed a “squeeze” on household budgets that could push the unemployment rate beyond what was required to return inflation to target in a reasonable timeframe.

Hundreds of thousands of Australians are managing mortgage stress as they move off fixed interest rates secured during the pandemic. Record energy and rates bills, along with soaring insurance, petrol and grocery costs, are heaping economic pain on all.

When parliament returns on Monday, the Coalition will continue hammering Anthony Albanese over energy prices and the cost of living crisis.

Chalmers, one of the more cautious Labor ministers, on Wednesday was careful to not over-egg the inflation news: “It’s really pleasing to see inflation … is moderating further; we’d like to see it moderate faster.”