PATRICIA KARVELAS:
Inflation is still too high, but the long‑term inflation burden is beginning to ease. That’s the take out from yesterday’s inflation data which showed annual inflation rising to 3.8 per cent, up from 3.6 per cent at the start of the year. But underlying inflation, a figure that removes big one off price changes in the economy, edged down from 4 per cent to 3.9 per cent in the June quarter, that is some welcome news. All of which means the Reserve Bank meeting next week will likely decide to leave official interest rates on hold – that’s according to all the experts who watch these things closely. The Treasurer, Jim Chalmers, joined me earlier.
Treasurer, welcome to the program.
JIM CHALMERS:
Thanks very much, Patricia.
KARVELAS:
There are a lot of competing figures to digest but the one thing we know, and that you say, is that inflation is persistent and it’s sticky, that’s how you’ve described it. If it’s still so sticky, do we need another strategy to try and bring it down?
CHALMERS:
I think the strategy that we have deployed here, which is to get the budget in much better nick and to roll out all of this cost‑of‑living help in the most responsible way that we can, that has helped ensure that inflation, which had a 6 in front of it a couple of years ago, now has a 3 in front of it.
But we do know, and we’re upfront about this, we acknowledge this, we know that people are still under pressure, we know that this inflation is more persistent, stickier, more stubborn than any of us would like to see.
KARVELAS:
Do we know why it’s so stubborn though? Why is it so stubborn? Why is it, you know, why are we seeing even slight upticks like this?
CHALMERS:
Well what we’ve seen around the world, earlier in the year in North America, and last night in fact in the new data from the Euro area, is that even when inflation comes down considerably, as it has in Australia, it doesn’t come down in a straight line. It zigs and zags on the way down.
Inflation went up in Europe in the most recent data. Earlier in the year we saw that in the US and Canada. So it’s not unusual to see this.
It’s a combination of international factors and domestic factors. Some of them are temporary, including things like fruit and veg and some of the issues we saw in that June quarter.
But overall, acknowledging that inflation is more persistent than we want it to be, there were some welcome developments in the figures. And you’re right to say that there are a heap of numbers that were provided yesterday, but the ones that we found encouraging were the ones that showed that underlying inflation has come down again for the sixth consecutive quarter in annual terms. The monthly inflation read came down as well. The home‑grown element to this, the non‑tradeable sector, inflation in that quarter actually halved.
So still too persistent but some welcome developments as well.
KARVELAS:
Are mortgage holders still a long way from being getting any reprieve from the Reserve Bank?
CHALMERS:
Well that’s a matter for the Reserve Bank and as you and I know, we do this, we have this conversation pretty frequently.
KARVELAS:
But I have to ask because it’s the one thing –
CHALMERS:
Patricia, I understand.
KARVELAS:
– that people listening are waiting for. They want an interest rate cut.
CHALMERS:
I totally understand. I totally understand that, but I’m not going to pre‑empt or predict decisions that they take independently. I take responsibility for my part of this, which is turning those big Liberal deficits into Labor surpluses. The Reserve Bank Governor has said that’s helping in the fight against inflation.
But also I think one of the really kind of stunning conclusions of those numbers yesterday was when it comes to our cost‑of‑living help, the Bureau of Stats said that electricity prices would have gone up by 14.6 per cent without our energy rebates. Instead they went up 6 per cent. Early childhood would have gone up by 14.9 per cent, instead it fell by 5.7 per cent. And rent would have gone up 9.1 per cent but instead went up 7.3 per cent.
What that shows is all of these policies are helping to take some of the edge off these cost‑of‑living pressures, and the combination of our surpluses and the design of our cost‑of‑living relief means that we are helping rather than hampering the fight against inflation.
KARVELAS:
Okay. You talk about surpluses but they’re ending. We’re going to go into deficit. What impact will that have given the point you’re making about the help that having 2 consecutive surpluses has provided in this fight?
CHALMERS:
Well even in the coming years where we’re anticipating deficits, those deficits are much, much smaller than what was anticipated when we came to office by our political opponents. So even in that regard, a couple of hundred billion dollars of budget improvements in the coming years, and that’s important as well.
KARVELAS:
I’ve gone through the numbers and rent inflation is a huge issue still. In fact it really is remaining at basically almost the fastest rate since 2009. There’s a lack of home building, there’s rental vacancies at record lows. This is one of the most persistent issues in the economy and is having a huge material impact on people. What more can you do to accelerate that beyond what you’ve announced, can I say? Because if you look at home approvals, they’re just not fast enough.
CHALMERS:
Well, first of all, Patricia, I want to make it clear I agree with your diagnosis. This is really a defining issue in the economy right now. The housing pipeline is not what we want it to be. Rents are too high even with the help being provided by our 2 increases to Commonwealth rent assistance.
And that’s why that $32 billion of new investment, including an extra $6 billion in the May budget, is so important, because we need to build more homes, we need to build more rental properties, we need more homes for Australians. And that’s really one of the big features of that budget we handed down in May.
A lot of that is still to roll out. It’s rolling out right now. It’s attributable to Julie Collins, the former Housing Minister, and it’s a big job for the new Housing Minister Clare O’Neill, and it’s a very, very high priority for us.
We’re helping out in the near term with these increases to rent assistance, but building more homes is really the key here and that’s why we’ve got tens of billions of dollars invested in that task.
KARVELAS:
Okay, but you’ve got it invested but we’re still seeing approvals at very low levels. So is there, now that you have a new Minister and I know you’ve got big oversight over this, a strategy for turning that around?
CHALMERS:
Of course we do, and everybody’s got to play their part. The industry, the state governments, local governments and the Commonwealth government and we are prepared to do our bit here. We’ve shown a willingness to do our bit with all of that investment that we’re rolling out.
But everybody needs to do better. I think that’s self‑evident, and I think that’s understood across all the jurisdictions and across the industry. The housing pipeline’s not what we need it to be. We need to do better, and I think that there is a lot of welcome focus on that right around the country.
KARVELAS:
The US Federal Reserve has left interest rates unchanged overnight and has even begun contemplating at least cutting interest rates. Do you see the US as being kind of the light on the hill that we’re going to follow here?
CHALMERS:
Look, I don’t know about that but there are 2 important developments overnight in the world in the global economy. The feds staying put, part of that, but their interest rates are much higher than they are in Australia, but there’s some commentary around their decision to leave rates unchanged and some speculation about future rate cuts. That’s important to us.
But also in Europe, I think as I referenced earlier on, inflation actually went up in Europe. It’s a bit lower than us but it went up. You know, the direction of travel is not what they want it to be.
And so those developments are important. It’s a reminder I think about this persistence of this inflation challenge that we’ve all got in one way or another.
There’re some key differences between us and other parts of the world. In the US, for example, their inflation peaked higher and earlier than us so they’re a bit further along the path than we are. But overall we’re seeing around the world inflation’s come off a lot. The last mile is more difficult than the rest of it. And we got a bit of an indication of that in our own country yesterday with these CPI numbers that you and I have been talking about.
KARVELAS:
Do you accept that while we of course are not in any official recession people feel like we’re living in a recession?
CHALMERS:
I certainly understand that people’s experience of the economy right now is an economy which is soft, and people are under pressure and those 2 things are related.
We’ve had these interest rate rises in the system already putting people under pressure and slowing the economy, and we’ve got other issues as well, a lot of global economic uncertainty and those things combine to create an economy which is pretty soft.
We saw in the first 3 months of the year the economy barely grew at all. We’ve seen household savings come off. We got numbers yesterday showing retail trade is soft. And none of those things would come as a surprise to Australians. They know that things are difficult right now and that’s the primary motivation.
For all of this cost‑of‑living relief that we’re rolling out in the most responsible way, these tax cuts for every taxpayer and energy bill relief for every household, cheaper medicines and rent assistance and wage rises for millions of people on awards, all of this is designed to not just recognise that people are under substantial pressure but to respond to that in the most meaningful and responsible way we can.
KARVELAS:
Treasurer, I just need to change the topic and ask you about a huge issue of course affecting so many Australians and it has many people very concerned, and that’s the crisis at Rex. Is there serious conversation about permanent government intervention or an equity stake in Rex?
CHALMERS:
There is a serious conversation about all of our options, and that’s because we recognise that the services being provided here, particularly to the bush, they’re absolutely crucial to people who live in and work in regional communities, to regional economies and to the national economy.
So we are relieved to hear the administrators say that those regional services will continue. My colleague Catherine King in her characteristically diligent way is making sure that as many Rex workers as possible can be re‑employed and redeployed in the other airlines.
There’s a lot of working going on and we will consider really the whole range of options to make sure that people in the bush get the services that they need and deserve to make the big contribution that they make to our country and our economy.
KARVELAS:
Why has the government been so down on Rex running services between, like Sydney and Melbourne, for instance? I mean so many consumers want that kind of competition. Why is the government down on it?
CHALMERS:
I don’t know that we are. I mean I think we’re just drawing a distinction in – you know, we’ve been all asked in different ways, the PM, myself, Catherine and others have been asked in the last couple of days about what’s gone on here, and I think we’ve just made it clear that our highest priority are those regional services, some of those provincial cities and towns in Australia that wouldn’t be serviced were it not for Rex.
Those are our highest priority because of the way that those communities and local economies rely on those services. But I don’t think that we’ve been down on the airline. I think there have been some developments –
KARVELAS:
The Prime Minister said –
CHALMERS:
– which are concerning.
KARVELAS:
– that much of the airlines’ woes were down to its poor strategy and the expansion into capital city routes. And I see on my text line so many people relieved and happy that those routes existed because it provided competition and put downward pressure on prices, which of course is at a time where people are desperate for that kind of competition. So many people also live in the cities. Isn’t that an important part of the mix to have that competition in the airline sector?
CHALMERS:
Yeah, competition is a really important part of the mix and I know from working closely with Catherine and others that it’s one of the big motivations behind her white paper on aviation and some of the other considerations that we’ve been engaged in. Competition is important and I can understand why people want as many options as they can have.
But I think some of the discussion this week has just been really mostly a reflection since we got this very concerning and disappointing news about Rex, and that the highest priority is people in regional communities making sure they get the services that they need and deserve.
There’s a lot of commentary about business decisions taken by the company. There’ll be more of that no doubt as the administrators do their work. But we want to see people get the services in the bush and that’s our highest priority, and I think our commentary has reflected that.
KARVELAS:
Treasurer, why are you going to Fiji?
CHALMERS:
Well I think as I understand it I’m going to be the first Australian Treasurer to engage in the Pacific for almost 2 decades. I’ll be attending the Pacific Islands Forum Economic Ministers Meeting, which is really a testament to the value that we place on our partnerships in the Pacific. It’s about forging even closer ties with our closest neighbours, and it will be a really important opportunity to confer with our partners on the big challenges and opportunities in our region.
KARVELAS:
Treasurer, thanks for joining me.
CHALMERS:
Thanks so much, all the best.