EDITORIAL: Politics is overriding sensible economic policy

Inflation is a word bandied around so often that it is almost becoming a barbecue conversation staple.

That’s because its impact goes way beyond economic theory. It means higher prices, which the Reserve Bank of Australia analyses as it makes decisions on setting interest rates.

And the impact is visible every day in supermarkets across Australia. Woolworths boss Amanda Bardwell said on Wednesday there had already been an increase in customers — particularly young families and singles — looking to stretch their budgets by seeking special promotions after the RBA increased interest rates by 25 basis points to 3.85 per cent at the start of this month.

The pressure is not likely to ease any time soon. The release of Australian Bureau of Statistics data on Wednesday means home loan borrowers are facing more interest rate pain, with inflation still soaring by an annual pace of 3.8 per cent in January.

The consumer price index was above the RBA’s 2-3 per cent target for the sixth straight month. Underlying inflation, without volatile items, rose by 3.4 per cent, amid some expectation it will remain above the RBA target band into 2027.

The Federal government’s $75 quarterly electricity rebates expired at the end of last year, sparking a 32.2 per cent surge in annual power prices.

The latest data showed housing costs were up nationally by 6.8 per cent, clothing and footwear (5.6 per cent), education (5.4 per cent), alcohol and tobacco (5 per cent), recreation and culture (3.7 per cent), health (3.2 per cent) and food (3.1 per cent).

In response, Treasurer Jim Chalmers conceded the inflation figures were “higher than we’d like”, attributing blame to the Government’s decision to end commonwealth energy rebates, and maintaining private sector spending was driving resurgent inflation.

This was despite RBA Governor Michele Bullock having this month shot down his fixation with claiming government spending was not to blame for inflation — and the resulting flow on to interest rate hikes.

And there was a further glimpse into the mindset of Dr Chalmers’ boss Anthony Albanese on Wednesday.

Amid Mr Albanese’s response was his habitual political pivot to talk up Government measures to address cost-of- living pressures, such as cheaper medicines and childcare subsidies.

But as former RBA boss Philip Lowe pointed out last week, amid weak productivity growth, Government spending and “offering people handouts” added to demand.

And so as demand goes up, inflationary pressures grow, and as the cost of living goes up the cry goes out — throw more money at the problem. And around we go.

Three of Australia’s Big Four banks, including Commonwealth, see a May interest rate hike from the RBA. EY chief economist Cherelle Murphy is suggesting several rate hikes are now possible.

The writing is on the wall. For too long politics has been overriding sensible economic policy. And both sides of politics have been guilty.

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