Finance · Live Wire
Labor had a lot of luck before the last federal election. As well as vastly out-campaigning the Coalition, Anthony Albanese was buoyed by an historically unpopular opponent in Peter Dutton and intensifying dislike of Donald Trump. Critically, after peaking at nearly 8% in late 2022, inflation fell to within the Reserve Bank’s target band before voters went to the polls .
But, Tuesday’s Reserve Bank decision to lift interest rates to 4.85% showed Labor might be less lucky this time around. The hike was the fifth for 2026, and saw the RBA lift rates to a level not seen since the Rudd era. In its statement, the board said headline and trimmed mean inflation were now expected to remain above 3% until the end of 2027, some time later than forecast a few months ago.
Worse, it said neither measure would return to the 2.5% sweet spot until mid-2028. Australia’s next federal election is due in the early months of that year. The RBA’s warning, and renewed pain for households this week, is unwelcome in the extreme for the prime minister and Jim Chalmers .
Tuesday’s decision will add more pain for households already being whacked by the high cost of living – and if rates stay high through 2027 and up to the 2028 poll, Labor’s already wide but shallow base of support could be at risk. Voters frustrated at how tough it is to make their household budget stack up are already blaming the federal government. Even the treasurer conceded Tuesday’s hike would mean another hit in the opinion polls was all but guaranteed.
Chalmers rejected a suggestion he might step aside and give someone else a go as treasurer. “It will be difficult news for many Australians who are already paying a hefty price for circumstances outside of their control,” Chalmers said. He insisted not all of the blame lies with Labor.
Chalmers continued to point to high fuel prices emanating from Trump’s war in Iran, saying they were delaying progress on bringing down stubborn inflation. But, internally, Labor MPs will be angry at yet more bad news on the economy – a situation made worse by the fact Albanese is at the Commonwealth leaders’ summit in the Caribbean this week. The government has flagged savings in the December mid-year budget update, but significant cuts risk creating yet more anger in the electorate.
One Nation and the Coalition can’t admit it, but the result is all upside for them. Anger at Labor has already fuelled a realignment in the country’s politics and has left the major parties nervous. Pauline Hanson and Angus Taylor will benefit if voters keep punishing Labor.
The shadow treasurer, Tim Wilson, said Albanese and Chalmers would not deliver cuts sufficient to outweigh new spending decisions next month. “They will never commit to that because, as we know and history shows, for every $2 of savings they claim to find, they go on and spend another $3, and it ends up only stoking inflation further,” he said. One small hint of optimism for the government might be an omission from the RBA statement , with a reference being dropped to possible future rate rises “if needed”.
Michele Bullock, the governor, said it was appropriate to take stock and see if recent rises help curb inflation before thinking about the board’s next move. Luck can be crucial in politics. Labor will be hoping its good fortune doesn’t run out.
Source: The Guardian
