The sadness of the unsuccessful voice referendum will likely be compounded by the probability of two interest rate increases from the Reserve Bank in 2023. This will make the end of the year for the Albanese government particularly bleak.
The unexpectedly high inflation data and interest rate for the September quarter that were released on Wednesday caused many analysts to abandon the assumption that official interest rates had reached their maximum. According to reports in the media, investors currently put the likelihood of another quarter-point RBA raise to 4.35% on November 7 at 80%, which is a doubling in only one day.
According to projections provided by RateCity, borrowers who have mortgages will need to make additional repayments amounting to approximately $76 per month for every $500,000 that they have borrowed if the Melbourne Cup Day hike goes into effect.
The credibility of the new governor of the RBA, Michele Bullock, will be put to the test, not the least of which is due to the fact that she began her first official address on Tuesday by stating that the central bank “would not hesitate to raise the cash rate and interest rate further if there is a material upward revision to the outlook for inflation.”
The RBA is currently in the process of updating its forecasts regarding the future course of the economy, and it intends to complete these revisions in time for the board meeting that will take place in November. The complete readout would not be made available to the general public until three days later, on November 10th.
Jim Chalmers, an additional prominent economic person whose credibility will be in question, will be the focus of the spotlight. Already a target for criticism from the opposition for skipping a G2o meeting earlier this month to campaign on the voice to parliament, the treasurer now faces a difficult battle to convince financially stressed people that the government is in control of the situation.
Sadly, Chalmers’ reaction to the spike in quarterly inflation revealed that his perspective of the state of the economy hadn’t changed, despite the fact that the views of many pundits had shifted.
The treasurer started his media conference by saying, “The world is inflicting price pressures on Australians and we are doing the best we can to ease them.” He said this to downplay local issues such as the 7.6% increase in rents over the last year, which was the highest annual jump since 2009.
But what really threw me off was the way he interpreted the data.
Chalmers stated that “what we’re seeing today in these numbers is consistent with expectations,” referring to the previous statement. “It’s consistent with the forecasts that I put in the budget – the forecasts from the Treasury… it doesn’t materially change the inflation outlook going forward,” the president said.
The statements were based on guidance given by Treasury after the inflation data were released.
The impression that the data were “consistent” with projections is belied, however, by the gyrations of the markets, which include a rise of around a quarter of a US cent in the value of the Australian dollar to approximately 63.9 US cents.
Chalmers stated that the government was doing “whatever we responsibly can” to help reduce the financial burdens that had been placed on homes, and he cited a 10-point program that cost $23 billion. These include increases in energy aid and the largest increase in the Commonwealth’s rental assistance program in the past thirty years.
According to Australian Bureau of Statistics, he stated that “we have taken half a click off inflation” (which translates to 0.5 percentage points) as a result of our cost-of-living initiatives. “If we didn’t take action, prices would be significantly higher.”
The people who received help will undoubtedly be delighted that the price of power only increased by 4.2% rather than 18.6%, which is what would have happened if it weren’t for the rebates. Alterations to the childcare subsidy were one of the factors that contributed to the annual services inflation rate falling, coupled with cheaper holiday flights and accommodations. This marked the first time that annual services inflation had fallen since December 2021.
However, simply covering up the fundamental price pressures will not be sufficient. Both current RBA Governor Bullock and his predecessor, Philip Lowe, have a consistent focus on how inflation disproportionately affects those with lower incomes.
In other words, it was necessary for Chalmers to repeat his combative statements regarding the slaying of inflation dragons.
One of the commentators, Warren Hogan, who is a senior economist at Judo Bank, has been warning continuously that the Reserve Bank of Australia’s cash rate is too low to stifle inflation.
Since the RBA won’t convene to discuss rates in January due to the annual holiday, that means that there is a real possibility that rates may climb in either November or December, he said. And it’s possible that they won’t be the final ones.
“Until we get the interest rates well above inflation – say one percentage point – the RBA is the main game, not the government,” Hogan said. “Until then, inflation is the main game.”