Two charts tell the story of the bare-knuckled fight between the RBA and the Albanese government.
In the blue corner is the RBA which won’t cut rates because trimmed mean inflation is too high at 3.5%.
In the red corner is the Albanese government which has used energy rebates to lower headline inflation to 2.8% and falling.
The fight is over energy prices. As the RBA said in its minutes.
Looking ahead, headline inflation was forecast to remain temporarily within the 2–3 per cent target range until the September quarter 2025, when the scheduled end to energy rebates would see it pick up. Inflation was not expected to return sustainably to the target until 2026, as the level of aggregate demand and aggregate supply move into better balance.
It was Ukraine War profiteering by the East Coast gas cartel that delivered the energy bill shock in the first place, and then again in the two subsequent winters, driving electricity prices crazy.
Instead of addressing this head-on, a lily-livered treasurer used energy rebates to reduce the inflationary impact.
This is crazy policymaking. It is effectively subsidising the cartel gouge. But it is still disinflationary. Energy price rises are effectively wiped out and, by reducing headline inflation, rebates eventually pull down the 20% or so of ‘administered prices’ that are indexed to headline.
But the RBA refuses to accept this, insisting the energy rebates will roll off and sticking with trimmed mean inflation, which does not include the rebates.
This pushes the government into a corner of economic weakness where it is forced to spend more, even though nobody wants it to, further delaying and preventing RBA cuts.
This internecine macro-mismanagement cycle has driven the market economy in which most of us live into a two-year recession.
The East Coast gas cartel has kidnapped all three of the nation’s cowardly government, its egghead central bank, and the ransom is the entire private sector economy.
And it works for China.
