While strong public demand is helping to offset weaknesses in the private sector and support the economy, it is also contributing to inflation remaining above the target range.
In her post-meeting press conference on Tuesday, the Reserve Bank governor acknowledged the impact of high public spending but stated that the central bank expects inflation to return to its target range “in a reasonable way”.
However, Michele Bullock noted that from her private discussions with Treasurer Jim Chalmers, she believes he is “fully aware of the inflationary implications of his own policies”.
“He needs to be thinking about that because he, like me, understands that inflation is really what is hurting people at the moment,” Bullock said.
Ultimately, Bullock emphasised that both state and federal governments are “well aware” that inflation is the key issue and she expects them to be “very conscious of it”, particularly the federal government as the next election approaches.
However, shadow treasurer Angus Taylor remains deeply sceptical about the government’s ability to manage the economy effectively.
Speaking to the media on Wednesday, Taylor said that by “throwing money around”, the government is putting upward pressure on interest rates and on inflation.
“There is no plan from this government to restore that standard of living. None. Not even close,” Taylor said.
“This is a government that has completely failed when it comes to economic responsibility, and that’s why they have failed to bring down interest rates, to bring down inflation in the way that they promised they would,” the shadow treasurer continued.
Taylor stressed that the Coalition has opposed $92 billion of spending from the Labor government since they came to power, stressing that every Australian is going to pay for the government’s cost-of-living measures.
In its November Statement on Monetary Policy (SMP), the RBA said growth in government spending has been “stronger than expected” driven by public consumption.
“The staff forecast of public consumption has been revised higher several times over the past year in response to announcements of additional spending … A large share of the announced additional spending has been for existing services as well as cost-of-living support packages,” the central bank said.
Moreover, the bank acknowledged that moving forward, public spending is expected to remain robust supported by the provision of government services to households.
