Anthony Albanese and Jim Chalmers can forget about a pre-Christmas interest rate cut.
Michele Bullock has reiterated everything the Albanese government doesn’t want to hear.
Inflation is still running too hot. And it won’t be back into a sustainable band until 2026.
The RBA boss also made the subtle point that even if Wednesday’s monthly inflation data shows better headline inflation figures, it was unlikely to make any difference. In other words, the Treasurer can whinge and moan all he likes but unless the root cause of the problem is dealt with, mortgage holders are going to continue to cop it. And with Newspoll showing housing costs overwhelmingly dominating cost-of-living concerns, this is bad news for Labor.
Bullock has said it before and clearly believes it is worth repeating. It is the underlying inflation trend that needs to be brought under control. This doesn’t need much decoding.
When Bullock said she wasn’t buying into the politics – responding to Wayne Swan’s past commentary – you can bet she was also referring to the Albanese government’s attempts to buy itself better headline inflation numbers through energy subsidies. Bullock isn’t for turning on any of it. The board remained “resolute”, she said, in terms of the inflation problem. Headline inflation is tipped to dip below 3 per cent in Wednesday’s numbers, and well within the RBA’s 2-3 per cent target band.
While Chalmers has set this as the new political benchmark, it isn’t the benchmark that is going to tip an interest-rate cut.
Bullock continues to bell the cat on this political myth-making. “That is important because it’s reflecting cost-of-living relief, it is reflected in the prices that people are seeing,” she said. “It’s not really reflective of the underlying inflation pulse, which is more what are we observing happening with services, really, which is the crux of the matter. Progress in getting underlying inflation down has slowed, and it’s likely to have remained slow in the September quarter.”
Underlying all this is the productivity problem. Chalmers has said this couldn’t be solved quickly yet the government has not articulated a plan to lift it.
“Wages growth has passed its peak, but it remains high relative to productivity growth, which has been weak for some time,” Bullock says.
This is the key to lifting the living standards crisis. So what does this all mean for the political cycle? Even if a December election was still on the cards, it isn’t anymore. Labor will have to sweat on a lot of things going right post-January for a pre-election rate cut. Without one, its prospects will diminish more rapidly than they already are.
Ironically, to guarantee inflation and rates come down would require the government to do the exact opposite of what it is doing – spending. And with an election campaign to think of, the government is hardly likely to do that.
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