EDITORIAL: Distorted inflation figures aren’t fooling anyone

Australians all let us rejoice, for inflation is under three.

Except it isn’t. Not really.

According to the Australian Bureau of Statistics’ August figures, released on Wednesday, headline inflation has finally dropped below the magic figure of 3 per cent, reaching a three-year low of 2.7 per cent.

That puts it back within the RBA’s target band of between 2 and 3 per cent needed by the central bank to justify a long-awaited cut to the cash rate.

So happy days, right? Mortgage holders can finally expect some relief from the brutal tightening cycle that has decimated household savings across the past two years.

Unfortunately, that 2.7 per cent figure is a fraud.

It’s an artificially low figure bought by Federal and State governments through household electricity rebates.

And the RBA won’t be fooled by this bit of technical tomfoolery.

The bank will ignore the subsidy-distorted headline figure, opting instead to rely on underlying inflation, which strips out volatile price changes, namely those in electricity and petrol.

Underlying inflation reached 3.4 per cent in August, according to the ABS figures. That’s still a significant reduction from where it was in the first half of the year when it was running at 4.4 per cent. But it’s still a way off that yearned for a sub-3 per cent figure.

The job isn’t done yet.

That hasn’t stopped Treasurer Jim Chalmers from celebrating, calling the figures “very welcome, very encouraging and very heartening”.

Dr Chalmers is desperate for a pre-Christmas (and pre-election) rate cut to placate the masses and is piling the pressure on the Reserve Bank to deliver.

While he won’t entertain the Greens’ insane call to directly intervene by invoking never-before-used veto power to force a rate cut, Dr Chalmers’ has made his position clear through his rhetoric that high interest rates were “smashing the economy”.

RBA governor Michele Bullock isn’t for turning, however.

Speaking after the RBA board’s meeting on Tuesday, Ms Bullock repeated her position that there will be no rate cut until underlying inflation is brought back to heel.

“We really need to see under­lying inflation coming back down toward the target,” Ms Bullock said.

The message clearly from the board is that in the near term, it does not see interest rate cuts.”

It doesn’t get much clearer than that.

Ms Bullock has shown admirable resolve in the face of sustained pressure from the Government. Repeatedly, Ms Bullock has acknowledged that high interest rates hurt households. But, she says, the pain from runaway inflation would be far greater.

As the prospect of a rate cut before the Federal election remains distant, the Federal Government will try to convince voters that it has held up its end of the bargain in the inflation fight all the same.

With pressure on household budgets remaining high, that won’t be an easy sell.