Wait a minute, Jim Chalmers. Who’s blaming ‘workers’ for inflation!? Treasurer starts day of interest rate hell with comment that should astound Australians: PETER VAN ONSELEN

Treasurer Jim Chalmers says he isn’t blaming Australian workers for inflation. That’s good of him! 

‘I’m reluctant to blame the workers of this country for our inflation challenge’, he said on Tuesday morning -pointing instead to high petrol prices.

Nobody is blaming workers for inflation! The criticism is that demand is running ahead of what the economy can supply, and Chalmers’ government spending adds to that demand. 

Suggesting his critics want to blame workers lets him avoid answering for the part of inflation Labor can influence: too much government spending at a time when the RBA would rather there was less of it.

Petrol prices are adding to the pain, but inflation was above the Reserve Bank’s target before the latest oil shock.

The RBA is widely expected to lift the cash rate from 4.35 to 4.6 per cent on Tuesday afternoon. Rates will be at their highest level since 2011 and its fourth increase this year.

Borrowers who thought last year’s three rate cuts marked the beginning of sustained relief have had those hopes comprehensively dashed.

If banks pass on the increase in full, Canstar estimates monthly mortgage repayments will rise by about $91 on a $600,000 mortgage, $114 on a $750,000 loan and $152 on a $1 million loan.

The cumulative figures tell the more troubling story. Four rises this year would add about $364 a month to repayments on a $600,000 loan. On a $1 million mortgage, the increase would be about $606 a month.

That’s roughly $4,400 and $7,300 a year respectively, coming out of income households have already paid tax on.

For families with little left over each month already, there is no painless expense left to cut. The rate rise is designed to address high inflation, which is already hurting families managing daily expenses.

The consequences of today’s expected rate rise will also extend well beyond mortgage holders. When households spend less, restaurants, retailers and other small businesses lose customers. 

Those businesses also face higher borrowing costs of their own courtesy of rates going up. Weaker sales eventually affect hours worked, hiring and jobs. That’s how interest rates put a brake on demand right across the economy.

Would-be home buyers face a mixed picture going forward. Falling property prices may help, yet higher rates reduce what banks will lend them. 

Renters have no mortgage repayments to meet, but they still have to live with the effects of a softer jobs market and the difficulty of building more homes when finance is expensive.

Some landlords will seek to recover increased borrowing costs through higher rents, although their ability to do so depends on local demand and supply. 

The RBA has a clear reason for acting. Underlying inflation has been running at 3.6 per cent, well above its 2 to 3 per cent target. Higher oil prices add to an inflation problem already being exasperated by domestic inflationary pressures.

Yet Finance Minister Katy Gallagher declared yesterday that ‘the challenges that we’re having now in relation to inflation are not caused by government spending’.

How convenient for the minister responsible for controlling expenditure.

In February, RBA governor Michele Bullock said ‘we are seeing aggregate demand, public and private, push up against the limits of growth’. Public spending counts, even when ministers consider the programs worthwhile.

The government can’t control global oil prices, quite obviously. But it should be able to control its own federal Budget.

Pressure from overseas should strengthen the case for restraint at home. Instead, borrowers are being asked to absorb another increase while the Finance Minister declares her own portfolio blameless.

It’s ridiculous head in the sand stuff.

Nor is there a reliable moment when things are likely to get any better. ANZ expects another increase in November. The Commonwealth Bank isn’t currently forecasting one, but acknowledges the risk and has pushed its expected first rate cut all the way back to August next year.

The RBA is left to weigh up the cost of persistently high inflation (when Labor isn’t doing its part fiscally) against the damage another increase will do to an economy already slowing down.

The danger is that bringing inflation under control will cost Australians their jobs as well as more of their income. That makes the government’s refusal to acknowledge its own contribution harder to stomach.

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