Treasurer Jim Chalmers wants the RBA to explain ‘and defend’ its inflation strategy

Jim Chalmers has responded to an RBA member’s surprising acknowledgment the central bank had done a “terrible job” in controlling inflation.

Inflation will remain higher for longer in Australia, extending the cost of living crisis, but Jim Chalmers maintains the economy will keep growing despite the rising threat of a global “hard landing”.

The Treasurer has also welcomed a top Reserve Bank official’s admission that the central bank did “a terrible job” controlling inflation during the pandemic, forcing the most painful series of interest rate hikes since the 1980s.

Dr Chalmers arrived in Washington DC on Thursday to another wave of grim news, with US Federal Reserve officials signalling America was likely to fall into a recession within months that could take two years to recover from.

He admitted Australia’s economic growth forecast – slated at 1.5 per cent for the next financial year – would be slashed in next month’s federal budget.

Treasurer Jim Chalmers said it was up to the RBA to explain its decision’s on inflation control.

But the Treasurer maintained Australia was in a “position of relative strength” as the International Monetary Fund tipped a possible “hard landing” from the global effort to combat inflation by jacking up interest rates.

“We won’t be completely immune from that in Australia but we are better placed than most to deal with this global uncertainty,” Dr Chalmers said, pointing to the low unemployment rate, burgeoning wages growth and strong export prices.

“We are optimistic about the future but we are realistic about what a global downturn could mean for our economy.”

Asked about Reserve Bank board member Ian Harper’s acknowledgment of their failure to control inflation, Dr Chalmers said: “I think it’s appropriate that they explain and defend those decisions publicly.”

RBA Governor Philip Lowe. Picture: NCA NewsWire / Gary Ramage

“I appreciate the candour and the frankness of the board member who made those comments,” he added.

After the IMF lifted its inflation forecast to 5.3 per cent in Australia this year, the Treasurer confirmed the budget would show inflation would be “higher than we’d like for longer than we’d like”.

He promised to deliver “responsible cost of living relief without adding to these inflationary pressures”, headlined by support for household power bills delivered in partnership with state governments.

“The budget will be defined in so many ways by the economic pressures that we’re seeing from around the world but which are being felt around the kitchen tables of Australia,” he said.

Dr Chalmers was expected to meet 18 of his international counterparts in Washington DC including US Treasury Secretary Janet Yellen and British Chancellor of the Exchequer Jeremy Hunt.

He said a key focus would be vulnerabilities in the global banking system after the recent collapse of several US regional banks and the takeover of Credit Suisse.

“We are worried about the spillovers into the broader economy. People are very jumpy about the global economy right now, and the banking system in particular,” Dr Chalmers said.

Originally published as Treasurer Jim Chalmers wants the RBA to explain ‘and defend’ its inflation strategy