Scott Morrison has embarked on a media blitz to defend his government’s economic management against the backdrop of soaring inflation and a high risk the Reserve Bank will start raising interest rates from next week.
Figures on Wednesday showed annual inflation surged to 5.1 per cent as of the March quarter, its highest level in over two decades and up sharply from 3.5 per cent three months earlier.
Importantly, annual underlying inflation – which smooths out volatile price swings and is more crucial to the interest rate outlook – also jumped to 3.7 per cent, its highest result since 2009.
It is well above the RBA’s two to three per cent inflation target.
Financial markets are fully pricing in the risk of a 0.15 per cent increase in the cash rate to 0.25 per cent when the RBA board meets next Tuesday, and see further increases in coming months.
If correct, it would be the first rate hike in an election campaign since 2007, a poll former Liberal prime minister John Howard went on to lose.
Mr Morrison said he respects the independence of the RBA and it will need to make its judgment in the best interests of the Australian economy
“There is a big difference between what occurred in 2007 and where we are at now,” the prime minister told the Seven Network.
“The last time the Reserve Bank did that the rate was 6.5 per cent, today it is 0.1 per cent. So I think the circumstances of the economic environment we’re in now is very different.”
He said the pressures are not home grown, they are external.
“What we are experiencing right now, Australians are experiencing because of what has happened with the pandemic, the war in Europe, is putting massive pressure on prices all around the world,” Mr Morrison told Sky News.
“That is really impacting on people’s household budgets and we understand that.”
He said households were provided with a “shield’ in last month’s budget by halving fuel excise for six months, providing one off payments to welfare beneficiaries, as well as a temporary increase in the tax offset for low income earners.
He also points to the strength of the economy under his government, which has seen the unemployment rate fall to a near 50-year low of four per cent and allowed Australian’s to enjoy lower taxes.
But shadow treasurer Jim Chalmers said the latest inflation figures have “absolutely torpedoed” Mr Morrison’s claims on economic management.
“It is not good economic management if Australian working families can’t get ahead and they can’t get ahead under this government,” he told the Seven Network.
He later told ABC radio the prime minister has an excuse for everything but a plan for nothing.
“When things are going well in the economy he takes all of the credit, when things are difficult for Australian working families, as they are now, he takes none of the responsibility. I think that drives people wild,” Dr Chalmers said.
There was a marked change of thinking among economists on the interest rate outlook following the inflation figures, with many shifting there expectation of a move to May from June, the first increase since 2010.
“Australia’s inflation dynamics have changed,” Deutsche Bank Research chief economist Phil O’Donaghue said.
He said the RBA has a very narrow window of opportunity to avoid a US-style inflation spiral.
“Federal election or not, it should act now,” he said.
