While Dr Jim Chalmers won't be tearing up the text of the anti-inflationary Philippic he is due to deliver in Parliament on Thursday, even he must be taking some heart from Wednesday's better than expected CPI result.
While the difference between the 6.3 per cent figure for the 12 months to the end of June the pundits had been expecting and the 6.1 per cent actual result may seem miniscule, the important thing is that not only is it trending in the right direction, we didn't see a repeat of the unexpectedly dismal March quarter result.
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Dr Chalmers acknowledged that, on Wednesday, when he said that while inflation would still "get worse before it gets better" he was confident the government and the Reserve Bank would get "on top of it". The expectation is it will peak at about seven per cent - or a little higher - in early 2023 before beginning to descend back into the Reserve Bank's two to three per cent target range.
While this sounds like good news for all, the downside is the Treasurer is adamant he won't be extending the fuel excise levy cut beyond September. That was already almost a given as a result of the fall in the oil price from around US$120 a barrel to US$100 a barrel delivering pump price reductions of almost 20 cents a litre over the last month.
That, in turn, highlights the complex nature of the challenge the government and the Reserve Bank have to deal with. Much of the global inflationary pressure is not just the result of wage expectations or economic policy. It is also being driven by supply chain disruptions caused by labour shortages, lockdowns in China, and soaring fossil fuel costs that have come about as part of the economic fallout from Russia's illegal invasion of Ukraine. The morning-after hangover from the trillions of dollars of Keynesian economic stimulus used to offset the recessionary impact of COVID hasn't helped either.
Raising interest rates is just one part of the equation with Angela Jackson from Impact Economics noting that " ... if the international factors resolve themselves, that will take a lot of the price pressure off without the Reserve Bank having to lift rates [more aggressively]".
That dovetails nicely with the Prime Minister's recent calls for the Reserve Bank not to go full throttle on raising the cash rate at the expense of consumers. Experts who were tipping a .75 basis point hike just days ago have now wound that back to .50 basis points.
His view, while criticised by some as potentially interfering with the Reserve Bank's independence, was underscored by the IMF's decision to downgrade its outlook for the global economy for the second time in just three months on Tuesday.
The IMF has forecast global economic growth of 3.2 per cent this year and 2.9 per cent next year; reductions of .4 per cent and .7 per cent from April respectively. This has increased concerns about the risk of recession, including Australia and the US, which - ironically - will put a check on inflationary expectations and, hopefully, act as a brake on interest rates.
The glass is neither half full or half empty. Yes, its not all doom and gloom and, on the positive side, unemployment is effectively the lowest it has ever been. And yes, even if the RBA does raise the cash rate by 250 or even 300 basis points, interest rates will still be below the 20 year average.
But, on the other hand, inflation is at a 32-year high (if you exclude the one off GST-jump), millions of people are worrying about mortgages or rising rents, and the cost of household essentials has gone up by 7.6 per cent for the quarter compared to four per cent for discretionary goods and services.
This is no time for either the government or the Reserve Bank to blink. While it is a given inflation is preferable to recession, the preferred outcome would be to avoid both and to manoeuvre the economy to a soft landing.
