The Reserve Bank didn’t just lift the cash rate 25 basis points today, from 3.6 to 3.85 percent. It also delivered a verdict: the inflation fight is being made harder by Canberra’s fiscal denial.
Anthony Albanese and Jim Chalmers, I’m talking about you. The clown show that is the opposition isn’t relevant right now, but their collective political failure doesn’t absolve Labor of its responsibility managing the economy.
Rate rises are never popular, and politicians knows exactly who wears the pain first: mortgage holders, renters and small businesses watching repayments and input costs squeeze their margins. The banks will all pass on today’s cash rate increase soon enough.
But the point of the Reserve Bank’s monetary policy isn’t popularity, it’s restraint. When inflation stays too high for too long, the central bank must tighten financial conditions until demand cools and price setters lose confidence that they can keep passing costs on.
That’s the bit governments prefer to outsource. Monetary policy is a very blunt instrument, but it is also the only lever that moves quickly. It’s also all the RBA can do to help fix an inflation problem.
And when the government refuses to do its fair share, by cutting inflation stimulating public spending, the RBA is left to do the heavily lifting.
That happened today, and there may well be further rate rises to come….IF Labor doesn’t reduce government spending.
The PM and Treasurer spent far too long acting as if inflation had been defeated and brought under control. They were wrong, plain and simple. Now they need to own their failure to cut spending and do so sooner rather than later.
Time to make some tough calls, Jim: Chalmers needs to show genuine spending discipline, not clever rebranding and tricks to save Australians from an inflation nightmare
Albanese’s government has an opportunity to reform with the May budget
The May budget must be that moment. If it’s not, the second half of this year could well see a plethora of rate rises, designed to drag inflation back down into the RBA’s 2 to 3 per cent range.
Inflation that lingers too high is not a short term inconvenience. It hammers household budgets and whittles away people’s savings. It pushes prices out of reach. It threatens to exacerbate cost of living challenges. And governments that chase rising inflation with more hand outs and more spending risk long term economic damage to the economy.
That’s why the real story isn’t what the RBA board resolved to do today. It’s what Labor chooses to do next when pulling together the budget papers.
The government now has a simple choice. It can keep pretending that it’s handouts are helping, or it came accept that fiscal restraint is the only way to help the RBA mange the new inflation crisis. That means accepting the bleeding obvious, that when inflation is still above target Labor can’t keep pushing up demand and then act surprised when rates rise.
The May budget is fiscal D-Day. Jim Chalmers needs to show genuine spending discipline, not clever rebranding, off-budget tricks or one off savings that disappear the next year.
If Labor won’t make hard calls at a macro level, households will be forced to keep making them instead, at the micro level. At the bank, at the checkout and when thinking about any and every purchase they hope to afford.
