Cost-of-living crisis is the dragon the government can't slay

At a White House briefing early this week, Joe Biden’s press secretary, Karine Jean-Pierre, was asked whether there’d been any thought of postponing Anthony Albanese’s state visit because of the Middle East conflict.

No, she said, highlighting the importance of alliances and reassuring that the president could handle more than one thing at a time.

From Albanese’s vantage point it’s extraordinary that, in the space of a fortnight, he’s breaking bread with the two most powerful men in the world, Biden and China’s Xi Jinping.

Of course, when an Australian prime minister is invited to Washington, he or she has to go. This trip, partly a consolation prize for Biden having to pull out the Quad meeting earlier this year, has been particularly important as Australia tries to push along the implementation of the AUKUS agreement.

But, domestically, the timing is not great for Albanese. As pictures came in of the glamorous black-tie White House state dinner (later overshadowed by another dreadful shooting in America), many Australian families were facing a fresh bout of anxiety about their mortgage payments.

Wednesday’s September-quarter figures, showing inflation is still uncomfortably high, set off speculation about whether the Reserve Bank will increase interest rates again, either after its meeting on Tuesday week, Melbourne Cup Day, or in December.

The bank is usually Delphic about its intentions, and new governor Michele Bullock is showing herself a master at that game.

In her first major speech as governor, delivered before the inflation figures, Bullock said the bank’s “focus remains on bringing inflation back to target within a reasonable timeframe, while keeping employment growing”.

It was possible this could be done without changing the cash rate, she said. But there were risks and the bank’s board “will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation”. The board would receive more information before its meeting that would be important for this assessment, she said.

She left similar uncertainty when she appeared before a Senate estimates hearing on Thursday, saying the inflation number “was pretty much where we thought it would come out”. As for whether it made a rate rise more or less likely, “I wouldn’t like to say more or less likely – we’re still looking at it.”

Bullock has her standing on the line with this decision. As her predecessor, Philip Lowe, found, misjudgments can bring both reputational damage and public odium for the bank’s governor, who is much more an exposed public figure these days.

Treasurer Jim Chalmers had multiple messages after the inflation number. The annual figure was in line with expectations, he said, but inflation was too high and would be so for too long. These figures didn’t take in the fallout from the Middle East conflict – that’s an unknown still to come. He emphasised (drawing on the Australian Bureau of Statistics data) that the government’s various measures (energy relief, child care and the like) are “taking some of the edge off these pressures that Australians are feeling”.

The point is, however, that whatever the government has done is for the average household only at the margin.

Read more: Politics with Michelle Grattan: Treasurer Jim Chalmers on Michele Bullock's appointment as Reserve Bank Governor

Many people have already moved from fixed low-interest loans to higher rate loans. But many are still facing that cliff. According to Reserve Bank data, about 520,000 loans are estimated to roll over in the second half of 2023 and another 450,000 loans will roll onto higher rates in 2024.

The government hopes Bullock will hold the line on rates in the next two months. A pre-Christmas rise would really put pressure on it. It mightn’t be responsible for the trouble but it rode to power promising to relieve cost-of-living pressures. Since then those pressures have become a great deal worse.

If this issue were to take a serious toll on Labor’s popularity over coming months, that would be likely to restrict the government’s scope to pursue its broader objectives.

Maybe Chalmers had this in mind when he spoke on Wednesday at the Political Book of the Year function (where the winner was Niki Savva for Bulldozed, her account of Scott Morrison’s demise). Chalmers reflected that the mood was rather more sombre than on the previous such occasion.

“Part of that, of course, is the recognition that people are under pressure, in some cases very serious pressure, we saw that again in today’s inflation numbers and addressing this challenge is our highest priority,” he told the audience.

“But also because, on top of this, we’ve had the Voice knocked back. There’s a new and escalating conflict in the Middle East, risking innocent lives and putting pressure on communities here at home. And we just lost one of the finest Australians, a wonderful Queenslander, Bill Hayden.”

Chalmers went on to observe that “political writing is writing about power”, and said: “The best speech delivered off the cuff in this room [at the National Press Club] was about power and purpose.

"When Paul Keating stood up here at the end of 1990, surrounded by journalists, he was mourning the loss of Chris Higgins [treasury secretary who had just died], and he spoke of our generational responsibilities to lead. Marrying-up power and purpose, in the service of something important.”

Chalmers recalled “the first time I met Paul, when interviewing him for my thesis. He gave me some free advice that went something like ‘why don’t you stop thinking about power and start exercising it?’”

Read more: As treasurer, Bill Hayden set Labor on the path to economic rationalism

Both Hayden and Keating have been role models for Chalmers. As the final treasurer in the Whitlam government, Hayden pursued budgetary rigour (in his case in the most difficult circumstances). Keating was the driver (with PM Bob Hawke) of an impressive agenda of economic reforms.

These days the public appetite for change is not what it was in the 1980s, when Keating was pushing through his measures. If the cost-of-living crisis persists for a long time, the opportunity for reforms will be further constrained. The political cost, however, could extend well beyond that.

So far, the public haven’t turned their wrath onto the government. The cost-of-living dragon has wreaked its havoc on families. If it starts to consume the government’s support, it could eat a lot of political capital very quickly.