EDITORIAL: Inflation drop welcome but don’t celebrate yet

You could almost hear the sighs of relief coming from Canberra.

According to figures from the Australian Bureau of Statistics released on Wednesday, the all-important annual trimmed mean inflation fell to 3.2 per cent in the December quarter, down from 3.6 per cent in September.

The last time underlying inflation was this low was in December 2021, as Australia’s economy was slowly being awoken from its torpor thanks to the roll out of COVID-19 vaccinations. The cash rate at the time was a rock bottom 0.1 per cent, where it had been for more than a year.

Fast forward through three years of a punishing cost-of-living crisis and with the cash rate stead at 4.35 per cent since November 2023, households are desperate for mortgage relief.

They might just get it when the Reserve Bank meets on February 18. If so, those sighs of relief won’t be confined to the capital, but will echo around the country as stressed mortgage holders finally catch a break.

But will a rate cut really be the vote-winner the Government hopes it will be?

Certainly, it will provide Anthony Albanese and Labor something to latch onto as they try to stem the flow of votes to the Coalition and minor parties.

The feeling that there are better times just over the horizon may cause some electors to look a little more kindly upon the struggling Government as polling day nears.

Treasurer Jim Chalmers wasted no time on Wednesday, telling Australians “the worst of the inflation challenge is now well and truly behind us”, while unemployment remains low.

“The soft landing that we have been planning for and preparing for is now looking more and more likely,” Dr Chalmers said.

“We don’t pretend that its mission accomplished on inflation, but we are making very substantial progress now on every measure.”

It’s a solid message to take to the election and one which may resonate with voters if they finally start feeling some relief.

But so too is the Coalition’s far less rosy take.

“We’ve got an economy that has been in a household recession for a record seven consecutive quarters,” shadow treasurer Angus Taylor said.

“We are absolutely at the back of the pack, beating inflation and getting that low inflation, strong economy that we all want to see.”

The Coalition argues that even with inflation finally under control, prices are still rising, and they’re doing so off a much higher base, leading to a long term standard of living crisis.

A report from Deloitte Access Economics backs up this glass half-empty view, forecasting that it will take until 2030 for living standards to recover to pre-pandemic levels.

Both stories — Dr Chalmers’ “soft landing” and Mr Taylor’s unshakeable living standards crisis — are believable.

Which one Australians choose to buy into may decide the election.