Why Michele Bullock will not call Jim Chalmers’ bluff

afr.com:

It’s extremely convenient for Treasurer Jim Chalmers that Australia’s central bank is in a vulnerable position at present because it means that Reserve Bank governor Michele Bullock will be extremely reluctant to call him out.

RBA governor Michele Bullock knows the central bank is vulnerable. Louie Douvis

It’s been a long time since any Australian Treasurer showed such scant respect for the Reserve Bank’s as Chalmers did last week, when he opined that the jump in inflation to 1.2 per cent in the three months to September did not amount to a “material change in the inflation outlook”.

Chalmers was also keen to blame global factors — particularly the surge in the global oil price — for Australia’s persistently high inflation.

Chalmers’ comments came shortly ahead of the Melbourne Cup day meeting of the Reserve Bank board, where board members face an extremely difficult decision on whether to raise interest rates for the 13th time.

Now, it’s possible to argue that the Reserve Bank board should keep the cash rate steady, given that Australian interest rates have already risen sharply, and consumer sentiment is deeply pessimistic, which should constrain spending.

What’s more, it’s clear that many people are feeling intense financial strains as they struggle with rising mortgage payments, and the Reserve Bank should be conscious of this human hardship.

At the same time, however, the latest inflation figures clearly mean that Reserve Bank’s goal of getting inflation back to its 2 per cent to 3 per cent target band by the end of 2025 is at risk.

Bullock, of course, has been talking tough on inflation. Last week, she noted the Reserve Bank board had a “low tolerance for allowing inflation to return to target more slowly than