Australia’s latest inflation data offers a small but significant glimmer of hope.
But converting that tentative improvement into lasting relief for mortgage holders—and avoiding another interest-rate increase—would be far easier if the Albanese government finally carried more of the burden.
That may seem like a strange conclusion when annual inflation has climbed from 3.5 per cent to 4 per cent.
For households watching their wages disappear into mortgage repayments and grocery bills, there is little comfort in seeing prices rise at all.
Yet underlying inflation increased by only 0.2 per cent in August, a marked slowdown from the 0.5 per cent monthly rise recorded in July.
Its annual pace held steady at 3.6 per cent. That remains uncomfortably high, but the softer monthly result provides an early indication that price pressures may finally be easing.
Underlying inflation removes the economy’s most volatile price movements—such as unusually sharp swings in oil—from the calculation. It therefore provides a clearer view of the broader, more persistent inflation trend.
Of course, a single month does not establish a trend, nor can it undo the financial damage already suffered. Slower inflation means prices are increasing at a gentler pace; it does not restore the purchasing power families have lost. Even so, the result offers a reason for cautious optimism.
Australia’s inflation data contains a small sign of hope, but turning it into lasting relief will require the Albanese government to do more of the economic heavy lifting.
The figures reflect conditions from some time ago, before Tuesday’s decision to raise the cash rate to 4.6 per cent. Pictured: RBA Governor Michele Bullock.
That leaves Labor with a clear choice: help transform this tentative progress into a sustained decline, or allow borrowers to shoulder an excessive share of the pain.
The rise in headline inflation was driven largely by higher fuel and electricity prices. Those costs are hitting households hard, but they do not show that every corner of the economy has suddenly begun experiencing faster price growth.
There is another important limitation. These figures cover August, while the calendar has now moved into October. The latest release is therefore not a real-time snapshot of economic conditions.
Instead, it records what was happening before Tuesday’s decision to lift the cash rate to 4.6 per cent—the highest level in 15 years.
Economic data takes time to collect, compile and publish. Rate rises also take time to restrain spending, as households cut back and businesses postpone investment, eventually placing downward pressure on inflation.
The Reserve Bank of Australia says some estimates suggest monetary policy—essentially, changes to the cash rate—can take between one and two years to exert its maximum effect. During that period, families adjust their budgets and companies reconsider investment plans.
That long delay leaves the RBA navigating considerable uncertainty whenever it changes rates. Policymakers must judge whether they acted too late, or moved too soon, before the full consequences become visible.
The central problem is that monetary policy remains an extremely blunt instrument.
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Even NSW Labor Premier Chris Minns has expressed frustration, warning that the Albanese government’s spending agenda could threaten his re-election in March next year.
That is exactly why the federal government should be providing greater support—and should have begun doing so much earlier—by restraining excessive spending that adds to inflationary pressure.
The RBA Governor has lamented this, as have respected economists the nation over.
Even Labor’s New South Wales Premier Chris Minns has vented his frustration because the recklessness of the Albanese government’s spending agenda risks his re-election in March next year.
Credible spending restraint could reduce domestic demand pressure and improve the chances of bringing inflation down with fewer additional rate rises, it’s that simple.
There are no guarantees, of course, but Canberra has more influence over that outcome than its excuses suggest.
It needs to review the worthiness of lower-priority programs, defer projects competing for scarce workers and materials, and only pay for new commitments with genuine savings elsewhere. This last point was made by Minns just on Wednesday.
Above all, Team Albo needs to stop treating every spending promise as untouchable while family budgets are forced to absorb another hit.
Cutting investment that expands productive capacity could make inflation harder to control over time. Essential services must also be protected.
But governing well means making those distinctions.
Deciding what can wait, what can be delivered more efficiently and what the country can’t afford in the current climate.
The political difficulty of cutting expenditure doesn’t make the economic case disappear just because Albanese wants to stick his head in the sand.
Governments can only control what they can control. The world oil price sits outside of that, but hundreds of billions of dollars of annual government spending does not.
Tweaking it can help the RBA to avoid another rate rise. It can even make future rate cuts more likely to happen sooner.
Indeed, the less control ministers have over international events, the more seriously they should take the domestic settings they can change.
There is reason for cautious hope in these figures. Another rate rise doesn’t have to be inevitable.
Labor should treat that opening as a reason to act.
Mortgage holders are already making sacrifices to bring inflation down. The government should not mistake their pain as a substitute for doing its job.
