Australians are increasingly pointing fingers at Prime Minister Anthony Albanese and his government for the nation’s rising inflation, which has prompted many to cut back on spending. As households tighten their belts by reducing expenses on takeaway meals, streaming services, and postponing essential repairs, a former Reserve Bank economist has warned that the nation might need to endure a recession to rein in inflation.
The latest Resolve Political Monitor, conducted between March 9 and 14, reveals that 40 percent of Australians attribute the escalating cost of living to the federal government. This sentiment comes just before the Reserve Bank is expected to raise interest rates by another quarter of a percentage point on Tuesday, a move that could further strain household budgets.
Inflation on the Rise
Australia’s inflation rate has surged from 1.9 percent to 3.8 percent over the past six months. Treasurer Jim Chalmers recently cautioned that the ongoing conflict in Iran, which has driven oil prices above $US100 a barrel, could push inflation even higher, potentially reaching the high fours.
The poll of 1803 people indicates that few voters attribute inflation pressures to external factors. While 40 percent blame the government, only 6 percent believe businesses or the Reserve Bank are responsible, and a mere 3 percent think consumers are to blame. However, 17 percent—the highest proportion since Resolve began polling on this issue—believe global factors beyond Australia’s control are contributing to the cost-of-living spike.
Economic Outlook and Interest Rates
The Reserve Bank’s upcoming decision on interest rates is anticipated to have significant implications for the economy. Financial markets estimate a 75 percent chance of a second successive rate hike on Tuesday, with expectations of another increase in May. This would elevate the cash rate back to 4.35 percent, where it was early last year, adding approximately $300 to the monthly repayments on a $600,000 mortgage.
HSBC Australia chief economist Paul Bloxham noted that the Reserve Bank might have to take more drastic measures to bring inflation down to its target range of 2-3 percent. He stated, “The RBA may now have to be clear that a recession may be what is needed to get inflation sustainably back to target.”
Cost of Living Pressures
Australians are already feeling the pinch of rising costs. The most significant cost-of-living pressure remains groceries and basic shopping, with 55 percent of respondents citing it as a major issue. Low-income earners, retirees, and unemployed individuals are particularly affected, with 62 percent, 61 percent, and 60 percent, respectively, reporting difficulties due to high grocery prices.
Utilities such as electricity and gas are the second-largest concern, affecting 41 percent of respondents. Although this is below the mid-2023 peak of 47 percent, it remains a significant issue following the cessation of federal and state energy subsidies.
Consumer Behavior and Future Expectations
In response to rising costs, 55 percent of Australians have cut back on non-essential spending, such as clothing and electronics, and are focusing on supermarket specials. Major grocery retailers have noticed this shift in consumer behavior.
Additionally, 47 percent of respondents are dining out or ordering takeaway less frequently, while one-third have canceled subscriptions. A similar number have delayed major expenses like home or car repairs. These adjustments are more prevalent among low-income earners, renters, and retirees.
Looking ahead, Australians are bracing for more economic challenges. Only 8 percent of respondents expect the economic outlook to improve in the next month, while 47 percent anticipate it will worsen. Over the next six months, 14 percent foresee improvement, but half expect conditions to deteriorate. By next year, 22 percent believe the economic outlook will have improved, compared to 44 percent who predict further decline.
The government’s handling of inflation and the Reserve Bank’s monetary policy decisions will be crucial in shaping Australia’s economic future. As households continue to grapple with rising costs, the pressure mounts on policymakers to find effective solutions.
