EDITORIAL: Labor Government fiddles while homeowners burn

Economists suspected Wednesday’s inflation figures would be bad. —

They didn’t think it would be this bad.

A “shocker” is how Betashares chief economist David Bassanese described the news that inflation hit 4 per cent in the year to May.

That’s well up on the forecasts of 3.8 per cent and a significant leap from figures from the previous month which showed inflation at 3.6 per cent.

Investors reacted quickly to the dismal news. Financial markets now rate the likelihood of the RBA increasing rates at its next board meeting in August at 40 per cent. They say there’s a 50 per cent chance the bank will move by September.

It’s heartbreaking news for the many Australian households that were pinning their hopes on a rate cut in the near future.

The RBA’s protracted tightening cycle, along with cost-of-living pressures from inflation itself, have drained household savings. An increasing number of quick home resales and a surge in mortgage hardship notices have illustrated that many have already reached breaking point.

Another rate increase could send more households tumbling over the edge of the fiscal cliff.

Earlier this month, RBA governor Michele Bullock sent a warning to borrowers. The Reserve Bank’s “laser focus” was on bringing inflation down.

And the only tool the bank has at its disposal is hiking rates.

It’s a frustrating state of affairs given that a few months ago it appeared we were finally beginning to get on top of the inflation challenge.

Compounding that frustration is the fact that other economies have won the battle.

Inflation in the US hit 3.3 per cent in May and is continuing to trend lower. Financial markets there are now predicting a rate cut in September followed by consecutive cuts throughout 2025. Economists are near-unanimous in thinking borrowers will get a rate cut in August.

UK inflation fell to the Bank of England’s target of 2 per cent in May.

Predictably, Treasurer Jim Chalmers tried to downplay the significance of Australia’s inflation figures.

“We’ve seen around the world that inflation can zig and zag on its way down, it doesn’t always moderate in a straight line and the last mile can be a bit harder,” he said.

In other words, hang in there and don’t blame us.

But unfortunately for Dr Chalmers and for the rest of us, there’s been a whole lot of zig and no zag to Australia’s inflation trend. It is going straight up and has been done for at least five consecutive months.

The fact is that recent big-spending budgets from both State and Federal governments have added to the inflation challenge.

Tens of billions in tax cuts will find their way into pockets from July. That too is expected to add to inflationary pressures.

And yet the Government’s focus seems to be everywhere else; on keeping rogue senators in line on Palestine, on creating anti-nuclear memes, on its own fading popularity.

It might have plenty of time to contemplate that final point should it not get a handle on cost-of-living pressures before next year’s election.