Chalmers Blames Trump and the Middle East for Inflation, but Voters Remain Unconvinced

The September inflation figures arrived with a number that Treasurer Jim Chalmers could point to as someone else's doing: fuel. The Australian Bureau of Statistics reported that fuel costs jumped 9.4% in the month, and that was largely responsible for annual inflation accelerating from 4% to 4.3%. Petrol and diesel were on average 24% more expensive than a year earlier.

Chalmers has laid the blame on the worsening conflict in the Middle East, and the analysis behind the story says he has a point. The war on Iran, which began in late February, has pushed up the price of oil, and Australia is paying for it at the bowser. A second overseas force is also at work: a sudden boom in datacentre spending, driven by the global rush among tech giants to build the infrastructure for artificial intelligence. That money is flowing into an economy already struggling to find the workers and materials to build homes and roads.

Earlier on the same day, Reserve Bank governor Michele Bullock made a similar case. Overseas developments, she said, were complicating an already difficult task of returning inflation to 2.5%, preferably by the end of next year.

Voters, however, are not accepting that account. The latest Essential poll found nearly a third of them believe government spending is the leading cause of rising living costs. Only 24% pointed to overseas events such as the oil shock, and 19% named supermarket price gouging. Carrying the lion's share of the blame may not be entirely fair, the analysis concludes, but it is the price of incumbency.

There is also something to the voters' view. Economists, including budget watcher Chris Richardson, argue that public spending is too high and is not helping bring inflation down. Government expenditure as a share of the economy sits around record highs. That sits awkwardly beside Chalmers' insistence that the government has nothing to do with the latest jump, particularly because RBA officials often refer to the capacity pressures that already existed when the Iran war began. The RBA's preferred measure of underlying inflation, which strips out the biggest price moves, also rose, from 3.6% to 3.7% in the year to the September quarter.

The next blow is expected next Tuesday, Melbourne Cup day, when the Reserve Bank is all but certain to deliver its fifth rate rise of the year. That would lift the cash rate to 4.85%, the highest since the global financial crisis. In Senate estimates, before the latest price data came out, RBA officials confirmed they were more concerned about inflation becoming entrenched than about unemployment, which recently reached a five-year high. Chief economist Sarah Hunter offered some reassurance, saying there were no signs the economy was in or heading into a recession in the near term.

Still, households are heading toward Christmas with rates at their highest since 2008, very high petrol prices and rising joblessness. The mood reflects it: the share of Australians who think the country is on the wrong track has climbed steadily to 61% in the Essential poll, while only 25% think the opposite.

That leaves Chalmers under pressure to use December's mid-year budget to change the story as the government nears the third year of its parliamentary term. The analysis calls it a tough ask with no obvious answers.