On Wednesday the ALP cleared the last real economic hurdle before Saturday’s election. Inflation remained steady at 2.4% and underlying inflation fell below 3%. Because Peter Dutton had made such a big deal about that measure, he now looks bereft of an argument.
A good campaign really should be able to see what is coming. It was clear to anyone with an understanding of economics that when the March quarter CPI figures were released, underlying or “core” inflation would definitely be lower than the 3.3% figure in the December quarter.
And so it came to pass. The official CPI remained steady at 2.4% (a slight fall from 2.42% to 2.40%), underlying inflation fell to 2.9% and so too did other measures that attempt to remove volatile price changes:
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So it was rather extraordinary that this week Dutton kept talking as though the opposite was about to occur.
In the last leaders’ debate on Sunday he argued that “if we can manage the economy well, it means that we can bring inflation down”.
Well, it is down now, so I guess that means the economy is being well managed?
He also claimed that “core inflation in this country is twice that of G7 nations”.
That line was always pretty dodgy given it appeared he was only counting France and Italy. But it looks even more weird now given our core inflation is essentially the same as the US (though it is measured differently – they exclude food and energy whereas we exclude, or “trim”, the biggest 15% price rises and falls):
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It also is silly because no one really has any clue what core inflation is. Given this quarter it excludes things such as medical and hospital services, childcare, automotive fuel and electricity, you might quite correctly wonder why any politician would think that a good measure.
Talking about inflation is treacherous because voters mostly don’t understand it. When an economist says inflation is coming down, most people think that sounds odd, because they know prices have not fallen.
Inflation is just the measure of the growth of prices over a certain period. So, if you talk about inflation not falling, and then it does fall, you look silly. You’ll also have lost the message because you should be talking about prices, not inflation.
But then Dutton has also been pretty careless with facts when it comes to prices.
His favourite line of the campaign has been that grocery prices have risen 30% under the ALP. In the debate on Sunday the moderator, Mark Riley, tried to get him to explain where he got that figure from.
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Rather than 30%, grocery prices on average have risen 13.3% since the last election. And yes, that is more than the 10.4% increase in wages, so clearly cost-of-living problems are real. But why exaggerate numbers?
He also sometimes claims electricity prices have gone up $1,300 when they have not. Even using his favourite measure of “default price offer”, the most Sydney users would have paid is $684. That seems more than enough – so why use a bigger number?
As to the real numbers, electricity prices remain lower in most cities than they were a year ago, even with a jump in Queensland due to the end of the state government rebate:
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The big driver of inflation over the past year has been rents – accounting for 14% of all the increase in inflation over that time:
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The issue has been most pronounced in Perth, where rent went up nearly 20% in the past year and 26% since the last election:
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Because all columns on inflation must concern themselves with interest rates, let us at least acknowledge that nothing in these figures will change the likelihood of a rate cut on 20 May. A 25 basis point cut is all but certain, and the likelihood of more than that remains very much alive.
The Reserve Bank likes to check service prices as they are closely linked to wages. The past six months has seen a strong slowing of services prices growth and the annual growth of 3.7% is very manageable:
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A large share of all prices are now growing by less than 3%, which suggests the level of inflation is widespread:
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None of this, however, should have you thinking that cost of living is no longer a problem. The past four years have not been kind – especially to those on low and middle incomes who spend a greater share of their income paying for necessities such as food, energy bills, petrol, transport costs and other “non-discretionary” items.
Thankfully we are finally seeing the price rises of non-discretionary items rise slower than wages, but the past four years show that a great deal has been lost:
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Over the past four years wages have risen largely at the same pace as the prices of discretionary items such as entertainment, travel and clothes (because you can actually put off buying a new pair of shoes, while you cannot put off paying an electricity bill). But the cost of necessities has risen 1.6 times faster than wages.
Such figures should have made for a pretty compelling campaign message for the opposition. But getting tangled up talking about inflation and core inflation and exaggerating numbers blunted Peter Dutton’s message and blew the opportunity he was handed.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
