Rather than making inflation worse, it seems that by cutting prices for many of us, the budget will help bring down inflation sooner, writes Peter Martin.
What they said was that cutting these prices will give people more free money to spend on other things, pushing up prices elsewhere, and putting more pressure on inflation and the Reserve Bank, which might have to push interest rates higher.
Actually, we don't need to imagine. It's partly why the Reserve Bank has just ramped up interest rates — to increase mortgage payments by up to, and in doing so take up to $1,000 a month from household budgets to take pressure off prices. He said the changes to rent assistance, the price of prescriptions and bulk billing were small and would put only "small downward pressure on prices", which he conceded might theoretically be offset by a boost to spending.
The energy price measures will do much more. Kennedy's department reckons they will cut inflation by three quarters of a percentage point in 2023-24, producing an inflation rate of 3.25 per cent rather than 4 per cent in the year to June 2024.
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