The only real argument for delay is the election itself
Australia finds itself at an uncomfortable crossroads, as inflation climbs to its highest point in twenty-one years — a signal that the long era of cheap money and stable prices is giving way to something more turbulent. Driven by the cost of fuel and shelter, and amplified by a war half a world away, the 5.1 per cent annual rise is not merely a statistic but a reckoning: for households stretched thin, for a central bank caught between its mandates, and for a government navigating an election campaign in which the price of living has become the central question of political life.
- Inflation has broken well above the Reserve Bank's comfort zone for the first time in over a decade, with underlying price pressures now embedded rather than fleeting.
- Petrol prices and soaring construction costs are squeezing household budgets, and consumer confidence has already tipped below the line where pessimists outnumber optimists.
- The RBA faces a near-impossible moment: raise the cash rate from its historic low of 0.1 per cent and risk hurting borrowers, or hold and risk appearing asleep at the wheel as global central banks tighten.
- The federal election campaign adds a layer of political sensitivity, even as economists argue the bank's credibility depends on acting independently of the electoral calendar.
- Government relief measures — fuel excise cuts and $250 payments to vulnerable Australians — have offered only temporary respite, with petrol prices already climbing again.
Australia's consumer price index rose 2.1 per cent in the March quarter, lifting the annual inflation rate to 5.1 per cent — a level unseen since 2001 and a sharp jump from the previous quarter's 3.5 per cent. The culprits are familiar: surging petrol prices and steeply rising dwelling construction costs. But it is the underlying inflation measure, which filters out temporary spikes, that has alarmed economists most. At 3.7 per cent annually, it has broken above the RBA's two-to-three per cent target band for the first time since 2010, suggesting price pressures are now structural rather than passing.
The Reserve Bank meets next Tuesday with the cash rate sitting at a record low of 0.1 per cent, and the inflation figures will dominate deliberations. Raising rates would push up borrowing costs for households and businesses, cooling spending and easing prices — but also adding strain to budgets already under pressure. The bank had previously indicated it wanted to see meaningful wage growth before acting, a threshold not yet reached. The federal election campaign further complicates the picture, though BetaShares chief economist David Bassanese argued the RBA should demonstrate its independence and move regardless, as it did during the 2007 campaign.
The government, meanwhile, has leaned into the cost-of-living narrative. Treasurer Josh Frydenberg has pointed to global forces — Russia's invasion of Ukraine, supply-chain disruptions, elevated oil prices — as drivers beyond Canberra's control. A relief package including $250 payments to pensioners and concession card holders, along with a cut to fuel excise, began flowing this week. But the reprieve has been brief: petrol prices have already begun rising again, and the ANZ-Roy Morgan consumer confidence index has dipped to 96.5, a reading that places pessimists in the majority.
What comes next is a question of timing rather than direction. A rate rise would be the first in more than a decade — a symbolic end to the era of ultra-loose monetary policy — and most economists expect several increases to follow as the RBA works to bring inflation back within its target. Whether the bank moves before or after the election will itself be read as a statement about its independence.
Australia's inflation rate has climbed to its highest point in two decades. The consumer price index jumped 2.1 per cent in the three months to March, pushing the annual inflation rate to 5.1 per cent—a level not seen since 2001. The figure represents a sharp acceleration from the previous quarter's 3.5 per cent, and it arrives at a moment when the Reserve Bank of Australia faces mounting pressure to act.
The drivers are familiar enough: petrol prices have surged, and the cost of building new homes has climbed steeply. But the underlying inflation measure—the one that strips away temporary price spikes and matters most to central bankers—tells an even more urgent story. It rose to 3.7 per cent annually, breaking above the RBA's target band of two to three per cent for the first time since early 2010. That breach is significant. It suggests the price pressures are not fleeting but embedded in the economy.
The timing puts the RBA in a difficult position. The board meets next Tuesday, and the inflation numbers will weigh heavily on any decision about the cash rate, which currently sits at a record low of 0.1 per cent. Raising rates would force banks to increase borrowing costs for households and businesses—a move that could slow spending and ease price pressures, but also bite into household budgets already stretched thin. The bank has previously signalled it wants to see meaningful wage growth before moving, a condition not yet met. There is also the matter of the federal election campaign, now underway, which creates political sensitivity around any rate decision.
Yet the global context is pushing the other way. Central banks around the world are tightening policy as inflation spreads. Russia's invasion of Ukraine has disrupted supply chains and sent oil prices higher. David Bassanese, chief economist at BetaShares, argued that the only real case for delay is the election itself—and that the RBA should demonstrate its independence by acting anyway, as it did during the 2007 campaign.
Treasurer Josh Frydenberg has been working the cost-of-living angle hard, particularly as his own seat faces a tight contest. He points to global factors beyond Australia's control: the war, the supply disruptions, the oil prices. The government has responded with a cost of living package that includes $250 payments to pensioners, income support recipients, veterans, and concession card holders—money that began hitting bank accounts this week. The government also cut fuel excise, which provided some relief at the petrol pump after prices had climbed past two dollars a litre during the quarter.
But relief has been temporary. Petrol prices have ticked up again in recent days, rising 2.6 cents per litre to 168.9 cents nationally, ending a four-week decline. Consumer confidence has eased slightly in response. The ANZ-Roy Morgan consumer confidence index fell 0.3 per cent to 96.5—a level below 100 that signals pessimists now outnumber optimists about the economic outlook.
The RBA's decision next week will set the tone for what comes next. A rate rise would be the first in more than a decade, a symbolic break with the era of ultra-loose monetary policy. It would also be the first of what many economists expect to be several increases over the coming months as the bank tries to bring inflation back within its target range. The question is not whether rates will rise, but how quickly—and whether the bank will move despite the election, or wait for the political calendar to clear.
Notable Quotes
The only real argument for delay now is the current federal election—this is another good opportunity for the RBA to demonstrate its independence— David Bassanese, BetaShares chief economist
Global factors such as high oil prices due to Russia's invasion of Ukraine and supply-chain disruptions are putting pressure on household budgets in Australia— Treasurer Josh Frydenberg
The Hearth Conversation Another angle on the story
Why does the underlying inflation number matter more than the headline rate?
Because petrol prices swing wildly based on global events—the Ukraine war, OPEC decisions, refinery outages. Those spikes are real for households, but they're temporary. Underlying inflation strips those out and shows you what's happening in the steady parts of the economy: wages, rents, the cost of building things. When that number breaks the RBA's target, it means the pressure is structural, not just a blip.
The RBA wants to see wage growth before raising rates. Why?
Because if wages aren't rising, rate hikes will just squeeze people harder without solving the underlying problem. If workers are getting paid more, they can absorb higher borrowing costs. But if wages are flat and you raise rates, you're just making it harder for people to service their mortgages and buy things. The RBA is trying to avoid a trap.
But other central banks are already moving. Doesn't Australia risk falling behind?
Absolutely. That's the tension. If the RBA waits too long, inflation expectations can become unanchored—people start assuming prices will keep rising, and that becomes self-fulfilling. Other banks are already tightening. The longer Australia delays, the more aggressive it might have to be later.
What does the election have to do with it?
Optics, mostly. Rate rises hurt borrowers, and there are more borrowers than savers in the voting population. A government doesn't want to be blamed for higher mortgage payments during a campaign. But the RBA is supposed to be independent. If it delays a necessary move just because of politics, it undermines its credibility.
So what happens if they do raise rates?
Mortgage payments go up immediately for people on variable rates. Consumer spending slows. Businesses become more cautious about hiring. It's a necessary medicine, but it stings. The hope is that by acting now, they prevent inflation from getting worse and avoid needing even bigger rate rises later.