Economists Say Rate Cut Not a Sign That Australia’s High Inflation Has Passed

People walk through a shopping mall in Sydney, Australia, on Oct. 25, 2024. Susan Mortimer/The Epoch Times

Economists say it is still too early to tell whether the country has pulled through the peak of inflation after the Reserve Bank of Australia decided to cut interest rates for the first time in four years—from 4.35 to 4.10 percent.

Economist Gigi Foster from UNSW expressed cautious optimism, highlighting the risk of an early rate cut means inflation could just rise again later.

“The hope is that inflation will continue its downward trend, but the main danger is that if the rate cut was too early, we may see a further rise or a levelling off at a higher-than-target rate,” she explained to The Epoch Times.

Federal Treasurer Jim Chalmers welcomed the cut, believing it signalled that the worst of inflation was behind.

“We’re not complacent about that either,” he added.

Shadow Treasurer Angus Taylor was quick to criticise the government’s handling of inflation, describing the rate cut as a delayed response.

“Too little, too late,” Taylor remarked, accusing Labor of not managing public finances properly to deal with inflation.

Independent economist Saul Eslake cautioned that inflation could rise slightly later in the year due to government policy and global factors.

“The RBA expects the ‘headline’ inflation rate to tick back up again (to 3.7 percent) by the end of this year,” Eslake said.

Impact on Consumer Sentiment and Household Spending

Although uncertainty remains, the rate cut is expected to provide a modest boost to household consumption and consumer sentiment.

“Some consumers will be relieved at the decision and may have a little more money to spend on other things, making them feel a bit more optimistic,” Foster said.

While the rate cut offers short-term benefits, economists agree that monetary policy alone cannot guarantee long-term economic recovery.

Eslake shared this view, underlining that while the rate cut may support economic recovery, it is not a cure-all for Australia’s economic challenges.

Calls to Reel in Public Spending

Both economists highlighted the need for prudent government spending that addresses long-term economic fundamentals rather than relying on politically motivated, short-term measures.

“We need less government expenditure in general, and particularly less interference that clouds the economic fundamentals that markets will then more easily discover and react to accordingly—propelling the economy forward based on what makes sense, rather than what is seen to be politically marketable (e.g. ‘energy rebates!’) or what the government can easily do with the stoke of a pen,” Foster said.