The Albanese government looks set for a dismal end to 2023 with the looming prospect of two Reserve Bank interest rate rises, compounding the disappointment of the failed voice referendum.
Wednesday’s surprisingly strong September quarter inflation figures prompted many economists to jettison views that official interest rates had peaked. Investors now price the odds of another quarter-point RBA hike to 4.35% on 7 November at 80%, doubling in a day, according to Bloomberg.
Mortgage holders should prepare to dig deep for extra repayments to the tune of about $76 a month for every $500,000 borrowed, should the Melbourne Cup Day increase materialise, RateCity estimates.
The new RBA governor Michele Bullock’s credibility will be on the line, not least because she opened her first official speech on Tuesday by saying the central bank would “not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”.
The RBA is in the process of revising its projections on how the economy will evolve and will finalise those forecasts in time for its November board meeting. The public will not get the full readout until three days later, on 10 November.
Another senior economic figure whose credibility will be in the spotlight will be Jim Chalmers. Already a target for opposition criticism for skipping a G2o meeting earlier this month to campaign on the voice to parliament, the treasurer now has a tough challenge to reassure financially stressed households the government is in control.
Unfortunately, Chalmers’ response to the jump in quarterly inflation suggested his view of the state of the economy hadn’t budged, even if many pundits’ had.
“The world is inflicting price pressures on Australians and we are doing the best we can to ease them,” was how the treasurer opened his media conference, downplaying domestic factors such as the 7.6% increase in rents over the past year – the biggest annual jump since 2009.
More jarring, though, was his reading of the numbers.
“What we’re seeing today in these numbers is consistent with expectations,” Chalmers said. “It’s consistent with the forecasts that I put in the budget – the Treasury forecasts … it doesn’t materially change the inflation outlook going forward”.
Interestingly, Guardian Australia understands the comments were based on advice from treasury after the inflation figures landed.
However, the gyrations of the markets, including a jump of about a quarter a US cent in the value of the Australian dollar to about 63.9 US cents, belie the view that the numbers were “consistent” with forecasts.
Chalmers said the government was doing “whatever we responsibly can” to help ease households’ financial woes, citing a 10-point, $23bn program. These include energy rebates and the biggest the commonwealth rental assistance increase in 30 years.
“We’ve taken half a click [0.5 percentage points] off inflation because of our cost-of-living measures,” he said, citing estimates by the Australian Bureau of Statistics. “Prices would be much higher without our actions.”
Recipients of support will no doubt be happy electricity prices rose only 4.2% and not 18.6%, as would have been the case without the rebates. Annual services inflation also eased for the first time since December 2021, with changes in the childcare subsidy part of the reason (along with cheaper holiday fares and accommodation).
But masking the underlying price pressures will not be enough. RBA’s Bullock and predecessor Philip Lowe routinely emphasise inflation scorches the less well-off the most.
Chalmers, in other words, needed to reprise his fighting words about slaying inflation dragons.
Warren Hogan, a senior economist at Judo Bank, has been one commentator to warn consistently the RBA’s cash rate was too low to smother inflation.
Since the RBA won’t meet on rates in January for the regular holiday, that means November and December are live prospects for rate increases, he said. And they might not be the last.
“Until we get the interest rates well above inflation – say one percentage point – the government’s not the main game, it’s the RBA,” Hogan said.
