Introduction to Australia’s Economic Crisis
Australia’s latest inflation numbers are disastrous and well above what was expected. Headline CPI jumped 1.3 per cent in the September quarter, taking annual inflation back up to 3.2 per cent. The trimmed mean, which strips out the noise, rose a full one per cent in the quarter and three per cent over the year – the first upswing in core inflation in three years. This combination of rising inflation and unemployment is a perfect storm that central bankers dread most.
The Consequences of Rising Inflation
The rising inflation will have severe consequences on the economy and households. Whatever hope borrowers had for a Melbourne Cup interest rate cut is now unlikely. In fact, there is probably more chance of rates going up next time, rather than down, unless the economy crashes to the point where the RBA is forced to reluctantly cut rates to save jobs and growth despite high inflation. This means that mortgage-holders will remain under the pump and will be forced to sell their homes if they lose their jobs while unemployment ticks up.
The Impact on Household Budgets
For a typical household budget, the latest inflation numbers spell disaster. On a $600,000 variable mortgage, every 0.25 percentage point move is roughly $125 a month. Hold rates where they are and there’s no relief, nudge them higher and you’re staring at a few hundred extra dollars a month when people are already struggling. This will lead to buffers being eaten up and emergency savings shrinking. The nice-to-haves, such as streaming and take-away, will be the first to go. Forget about holidays or eating out.
The Root Cause of the Problem
The root cause of the problem is the government’s mismanagement of the economy. The government’s instinct has been political management over economic reform. Structural spending pressures are marching on. The Parliamentary Budget Office has already flagged that the budget’s medium-term expenses are probably understated by up to 1.5 per cent of GDP. This means that things are worse than the projections already present them as being. The policy mix that has been legislated is actively crimping the private sector engine that could otherwise help get us out of this mess.
The Stagflationary Edge
With unemployment drifting up and core prices re-accelerating, we’re flirting with the stagflationary edge. Shadow finance minister James Paterson alluded to this risk, stating that wages are barely keeping the noses of ordinary Australians above water when you consider the last two years in which real incomes have been smashed relative to inflation. The RBA keeps warning that productivity hasn’t recovered from the pandemic dip, and unit labour costs are still unhelpful. If productivity doesn’t lift soon, today’s wage gains simply push tomorrow’s prices even higher.
The Role of Immigration
High rates of immigration are the only thing that will stave off a technical recession, unless the government finds it within itself to fix the budget and reform the economy. People have been doing it tough for years now, but the latest inflation numbers – coupled with rising unemployment and slow economic growth – strongly suggest that life will get harder for most Australians long before it gets better.
Conclusion
In conclusion, the latest inflation numbers are a wake-up call for the government to take immediate action to reform the economy. The consequences of rising inflation and unemployment will be severe, and it’s time for the government to stop managing the spin and start managing the economy. The government needs to take bold steps to fix the budget, reform the economy, and boost productivity. Only then can we hope to avoid a slow bleed recession and get the economy back on track. The future of Australia’s economy depends on it, and it’s time for the government to take responsibility and act.
