Cost of living has been bubbling along as the number-one issue for Australian households, and now it threatens to hijack the Albanese government’s second-term agenda.
The return of high and rising inflation is not only a blow to workers who were finally starting to see some real growth in their wages through 2025. It also risks further polarising and antagonising our already fraught politics.
Westpac’s consumer confidence survey showed growing pessimism in January, which the bank said was rooted in renewed fears of interest rate hikes.
Those fears look likely to be realised.
The Reserve Bank will probably hike rates on Tuesday, for the first time since November 2023.
This will be a blow to the heavily indebted mortgage belt, many of whom will also be seeing their electricity bills snap back to where they would have been were it not for government power bill subsidies.
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Consumer price growth has been climbing for six months now, and at 3.8% is miles higher than the 2.4% rate leading into the last election.
Discussions of what this all means will go beyond kitchen tables.
As Jim Chalmers has said, some of this inflationary rebound is temporary – higher prices associated with holidays, and the rolling end of energy bill subsidies.
But the treasurer also said “there are some persistent price pressures in our economy”, and that these pressures “will have a very substantial bearing on the budget settings”.
Chalmers had already pivoted to a more positive, forward-looking agenda based on lifting the nation’s lagging productivity – remember last year’s economic reform roundtable?
But he is now fielding questions about whether power bill subsidies need to be restarted, and at the same time if high government spending is to blame for rising prices.
The May budget was shaping up as a launchpad for Labor’s second-term agenda, but will now be hijacked by having to fight a battle the government thought it had won.
The stakes are high.
Politics are so fraught because economic grievance has emerged as a driving force among everyday folk, here and around the western world.
The Scanlon Foundation’s Mapping Social Cohesion report has repeatedly found that “financial wellbeing is the single most important factor associated with social cohesion”.
This week’s Essential poll showed One Nation’s primary vote has jumped to record 22%, and to 26% among 35-54 year-olds.
With housing a major component in the consumer price measure, the Liberals have been quick to blame migrants for high inflation, setting the stage for more ugly politics ahead.
As Tony Barry, the head of political research company Redbridge Group, wrote, while people “don’t think One Nation offers real hope, they credit them for at least recognising their grievances”.
“In politics, if no one offers a plausible path to security, you vote on identity and resentment instead.”
The Albanese government needs an economic agenda that delivers hope and security. They can’t do that as long as inflation stays high.
Patrick Commins is Guardian Australia’s economics editor
