EDITORIAL: Amid Budget chaos the inflation battle goes on

Buffeted by seemingly never-ending price rises eating into their finances, Australians have received a snippet of welcome news.

On Wednesday new Australian Bureau of Statistics figures showed inflation had fallen to its lowest level since before the Iran war, after fuel excise was halved.

In good news for home loan borrowers it is expected that the latest figures have lessened the chance of another interest rate rise next month.

The consumer price index in April dropped to 4.2 per cent, down from a near three-year high of 4.6 per cent in March, after the Federal Government last month cut petrol and diesel taxes to 26.3 cents a litre until the end of June.

This was the lowest headline inflation level since February’s 3.7 per cent annual increase before the US and Israeli strikes on Iran led to the Strait of Hormuz being blockaded, causing massive disruption to global oil supplies.

There are now expectations the Reserve Bank of Australia will hold interest rates steady in June given inflation was lower than market expectations of 4.4 per cent.

Treasurer Jim Chalmers said the statistic was a positive development but that inflation remained too high.

In a sign reinforcing the view that the inflation battle goes on, underlying, or trimmed mean inflation — which the RBA focuses on — rose moderately in April to 3.4 per cent, up from March’s annual pace of 3.3 per cent when volatile items were excluded.

This left it still stuck well outside the RBA’s target range of 2-3 per cent and was an indicator of a more persistent inflation problem than headline CPI suggested.

Deloitte Access Economics partner Stephen Smith said that given inflation had been above the RBA’s 2-3 per cent target for nine straight months, a rate rise in August was possible.

KPMG chief economist Brendan Rynne said core inflation remained stubbornly high despite several successive interest rate rises this year.

Economists warned the latest data showed evidence that higher upstream-costs associated with the impact of the war on oil and energy was flowing through.

Mr Smith said the Government’s temporary fuel excise cut, which is due to expire in just over a month, had helped to keep Australian fuel prices relatively low by global standards.

But even if supplies through the Strait of Hormuz resumed in the short term, global markets would take time to respond.

Meanwhile the fragile Middle East environment continues to simmer uncertainly.

While the Government has had its hands full coping with a backlash to the Budget and working on likely changes, the latest data is a sobering reminder that the inflation battle and wider economy remain the major long-term issues.

It was also a reminder of the long-term necessity for the Government to rein in spending lest it further fuel demand — which would put even more pressure on inflation.

And that would represent a set-back to the bottom lines of families already under pressure.

Responsibility for the editorial comment is taken by Editor-in-Chief Christopher Dore.