Sunday, 27 January 2008
Last week, as international events began impinging on the economic debate here, the political game being played by the government leadership was in danger of unravelling.
As the RBA has been saying and as it was sensibly reiterated by AMP Capital’s Chief Economist on The 7.30 Report the other night, the Australian economy does have inflationary pressures, but there are offsets from what is happening overseas, both the US slowdown and the secondary effect of the credit crunch pushing up bank rates here. In the longer term, as RBA Governor Stevens told Australian business in London, and Keating never stopped reminding us before the election, the reforms of the last Labor government (rolling back the unions) would provide an additional buffer (i.e. wages will take the strain).
The government leadership was ignoring these offsetting factors as the inflation ‘crisis’ was used as a political weapon against the former government and the spending plans of the ALP. But as the international situation started to hit the headlines with the volatile financial markets, the government’s tactics started to come under pressure.
It became a problem for the media as well. Even leaving aside whether inflation of 3.6% constitutes a ‘crisis’, it has been disappointing to see how the media continues to take the government’s inflation scare at face value and fails to see the politics behind it. It must be especially disappointing for Canberra residents, whose jobs are likely to be the collateral damage of this political tactic, to see how gullible their local Canberra Times journalists have been, one of whom recently added a theatrical touch to the leadership’s unusually well-publicised meeting with the RBA:
Mr Rudd and Mr Swan left Tuesday’s meeting with Mr Stevens reportedly “ashen-faced” and declaring that interest rates were under direct threat and they would do all they could to restrain government spending.
The idea that Rudd and Swan are being forced to make these cuts against their will flies in the face of how Rudd has leapt on these inflation scares ever since the Labor election launch to use against Howard and his own party. If second hand accounts on the pallor of the leadership’s faces is the crude end of the media tagging the government’s line, Tim Colebatch in The Age gave us the more sophisticated version. On Monday, he took the government’s inflation scares at face value and then read through the RBA Governor’s Friday speech as though it was saying the same thing. He described Steven’s speech as ‘unambiguously hawkish’ on an interest rate rise and made absolutely no mention of the structural anti-inflation factors that were quite clearly set out in the speech.
The problem for this government line, and the media who were following it, came next day on Black Tuesday, when the slump in global equity markets, especially in the US, meant that not even the Australian media could stop factoring it in when talking about inflation and interest rates. Suddenly, the headlines changed and by Wednesday morning Colebatch was writing that the ‘unambiguously hawkish’ RBA might not push up rates after all. But within a few hours that changed again and with the latest inflation figures out later that morning (lower than expected on headline, higher than expected on underlying), an interest rate rise seemed back on the menu.
Colebatch was not the only one flipping all over the place on Wednesday, the Economics Editor of the Canberra Times argued that the RBA would sit on its hands and then regretted it a few hours later in his blog. Even The Australian, probably the most enthusiastic for the political agenda behind Rudd’s clampdown couldn’t seem to decide whether the inflation rise was serious or not. The Australian seems to have settled on accepting the inflation crisis and the inevitability of a rate rise, but then sticking in a caveat at the end that the RBA may do nothing about it after all.
If the media are starting to get confused, it doesn’t bode well for Swan’s message. He is now in danger of being seen to veer between talking about crisis and then calming everyone’s nerves that the economy would be OK. It is not surprising the leadership’s weakened opponents are feeling emboldened to have a go. The unions have hinted at pushing for wage claims to keep up with inflation, although Gillard reiterated that only if productivity went up first. After having made a weak start on this over the banks, even the Liberals are starting to sound coherent. Turnbull noted that Swan is sounding schizophrenic over the economy and his talking up inflation will only make things worse. So what a shame it is for the Liberals that it was they, in the middle of the last campaign, who started this whole pantomime.
Posted by The Piping Shrike on Sunday, 27 January 2008.Filed under Key posts, Media analysis