Labor manages expectations of interest rate cut ahead of inflation data drop

All eyes will be on the release of new inflation data today as the Government seeks to manage expectations of a February interest rate cut offering long-awaited relief to mortgage holders.

The December quarter inflation figures, due to be released by the Australian Bureau of Statistics (ABS) on Wednesday, will signal whether the economic conditions are right for the Reserve Bank of Australia to proceed with a rate cut when it next meets on February 17-18.

If trimmed mean inflation is lower than expected, the RBA could take the call to bring down rates despite a weak Australian dollar and resilient labour market.

A fall in interest rates would be a boon to the Government in an election year, but Labor’s leadership has been keen to avoid any perception of directing the RBA.

Ahead of the data drop, Finance Minister Katy Gallagher told ABC Radio National Breakfast the Government had tried to ensure its decisions did not work against the RBA.

“When we came to government, inflation had a 6 in front of it, it now has a 2 in front of it. And at the same time, we’ve been seeing that welcome progress, we’ve been seeing quite extraordinary job creation, over a million jobs, 1.1 million jobs created,” she said.

Labor had overseen four quarters of wages growth and had been “very mindful of the inflation challenge,” she said.

But she acknowledged that despite lower inflation and unemployment that people were still “doing it touch, feeling under pressure” and that “there is more to do.”

A new report by Deloitte Access Economics has forecast living standards will not recover to pre-pandemic levels until 2030 despite record Federal and State Government spending.

The quarterly business outlook also assesses that the RBA may not cut interest rates in February, even if underlying inflation is moving into the 2-3 per cent bracket, citing the strong jobs market and Government spending.

Ms Gallagher did not commit to major fiscal changes if there is no rate cut.

“We’ve been able to find very responsible ways of providing some relief for that, whether it be the energy bill rebates, the tax cuts, childcare subsidies, rent relief – those types of things which can support households but not add to the inflation challenge,” she said.

Labor would be “mindful of economic conditions” as it put together its next budget, due on March 25, she said.

The Coalition has also not signalled it will propose a fiscal overhaul.

But opposition leaders are already poised to go on the attack over the Government’s economic record.

Deputy Opposition Leader Sussan Ley pointed to “12 interest rate rises” under the current Government.”

“We’ve seen the National Accounts tell us that Australia is in the longest household recession ever. And that is pain, pain for every single family in this country,” she told Sky News.

“While we all want to see improvements in these figures, as we do every time a new statistic or data point is released, sadly for too many businesses, the damage is done,” she said. “Australians are feeling the pain at the checkout, with their insurance costs, with their back-to-school costs, with their mortgages, with their rents.”

Ms Ley said more than 27,000 businesses had faced insolvency since Labor came to power, according to ASIC insolvency data.

The Coalition has put relief for small businesses at the heart of its Federal election strategy.

The January 2025 NAB Business-SME Insights report says three in four small to medium-sized businesses believe their costs will increase over the next 12 months.

“Anthony Albanese continues to tell the very businesses that are facing failure that things will only get better, the data does not back that up,” said Ms Ley.