The Reserve Bank is twice as worried about inflation as it was a year ago, according to statements it issues with every interest rate decision.
The interest rate remained unchanged on Tuesday at a 12-year high of 4.35 percent, but in the accompanying statement, the word “inflation” was mentioned 24 times.
By comparison, “inflation” was mentioned 13 times in the July 2023 statement, when Philip Lowe was still in charge.
From The use of this word to describe price pressures has then increased, reaching a high of 25 in the May 2024 statement.
This despite the consumer price index halving from 7 per cent in the March 2023 quarter to 3.6 per cent in the March quarter this year, based on annual price increases from all the articles.
However, inflation is still well above the RBA’s target of 2 to 3 percent and is not expected to fall within that band until the end of 2025.
Tuesday’s RBA statement for its June meeting hinted that public spending was adding to inflationary pressures, when energy rebates were excluded.
“Recent budget results may also have an impact on demand, although federal and state energy rebates will temporarily reduce overall inflation,” he said.
The Reserve Bank is twice as worried about inflation as it was a year ago according to its statements issued with every interest rate decision.
RBA Governor Michele Bullock clarified that government budgets were a factor driving demand.
“I think the conversation today at the meeting was not specifically about budgets but about the total context,” he said.
“I don’t think it’s very helpful to think about the Budgets in isolation.”
Treasurer Jim Chalmers called a hastily arranged press conference on Tuesday afternoon, following Ms Bullock’s press conference, to reject any suggestion that Labor spending was contributing to inflation.
‘The second issue has to do with the role of the Budget. “I don’t tell the Governor how to do her job and the Governor doesn’t tell me how to do my job,” she said.
“We are focused on responsible economic management, which is about repairing the budget, helping the cost of living and fighting inflation without destroying the economy.”
Chalmers announced a budget surplus of $9.3 billion for 2023-24 in May, marking the first consecutive surpluses since 2006 and 2007.
He was also the first Labor treasurer since Paul Keating in 1989 to achieve this feat.
But deficits are forecast from 2024-25, as falling iron ore and coal prices will reduce tax revenues for Commonwealth companies.
RBA Governor Michele Bullock clarified that government budgets were a factor driving demand
Treasurer Jim Chalmers called a hastily arranged press conference on Tuesday afternoon, following Ms Bullock’s press conference, to reject any suggestion that Labor spending was fueling inflation.
Prime Minister Anthony Albanese’s government is giving every household a $300 credit on their energy bill (through $75 rebates each quarter starting July 1), regardless of their income.
The Budget also provided for revised stage three tax cuts, which Bullock said would likely boost spending.
“Therefore, it is possible that consumption growth will also be a little stronger,” he said.
State governments, however, have announced budget deficits this month.
The Queensland Labor government, the underdog heading into October’s state election, last week revealed a budget deficit of $2.182 billion for 2023-24, just eight months after announcing a record surplus of $13.93 billion for 2022 -23, largely from coal royalties.
Labor in that state is spending $107.262 billion over four years on ‘Big Build’ infrastructure programs as Premier Steven Miles attempts to win his party a fourth consecutive term.
