On Tuesday I attended a Business Sydney breakfast with Treasurer Jim Chalmers and the only thing he said that unsettled the business audience was his defence of Labor’s new industrial relations bill, which looks like it will be inflationary.

It comes as a SMH story looks at Aussies (let’s call them voters) who are worried about the rising cost of living. This was one concern out of Dr Jim’s Budget as it did little to relieve cost pressures coming from high energy costs and rising interest rates.

Since Tuesday I’ve been wondering, (not why my horse didn’t win the Melbourne Cup) why my tip that the RBA might raise interest rates by 0.5% didn’t salute the judge. Dr Phil Lowe and his board opted for a 0.25% rise and one day this will be seen as a smart move or a gutless, inept decision that meant we have inflation longer than we need to!

To be fair, I can’t confidently call it either way, which underlines how hard Dr Phil’s job is. I thought one big 0.5% hit would scare Aussies into less spending to contain price rises, but the problem is that not all of us are being hit by these rate rises.

Only a third of us have mortgages and some of these are on fixed rate mortgages, while others have small loans and may have built up buffers inside their mortgage and so might be less affected by the rate rises.

And while some tenants might have had their rents raised, many would be in a lease where the rental changes are adjusted annually but their rent rise could still be a 2023 event. This and the fact many mortgagees roll off fixed rates next year, means Dr Phil might be worried about 2023 and how slow the economy might be with these negatives in the wings.

He also has a few negatives right now that are worrying many Aussies. In my story on Tuesday I pointed to the following:

• The ANZ-Roy Morgan Consumer Confidence reading fell 1.1 points to 81.1 last week and is now a large 25.7 points below the same week a year ago. In addition, Consumer Confidence is now 9 points below the 2022 weekly average of 90.1.

• It fell even further this week!

• House prices are diving. Since peaking in June, Brisbane house prices have dropped by 6.2%, while Sydney’s have plummeted by 10.2% since peaking this January and Melbourne’s declined by 6.4% since hitting their peak in February.

• The 6% drop in house prices nationally in six months is the fastest since 1980 — a recession year.

• The SMH says Aussie consumers are feeling the pinch with “Worker households experienced a 6.7 per cent increase in living costs, driven mainly by mortgage interest charges increasing as the Reserve Bank lifted rates.”

• Annually, food prices rose between 9 and 10% across the household types, driven by fruit and vegetables, with the floods not helping.

• Fuel prices are up 18% in a year.

• Insurance and financial service costs are up 12.8% for employees over the three months to September and 8.3% for self-funded retirees. 

Dr Jim thinks inflation is public enemy number one but he’s currently leaving the inflation fight in Dr Phil’s hands but raising interest rates not only beats down demand to lower inflation, it actually increases inflation by raising the cost of money, which flows into rents and the prices of businesses that are paying higher interest rates.

What we don’t need are big wage rises across industries that ignore the productivity of each business. If a business has lower productivity and maybe higher costs from imports that are dearer because the Aussie dollar has fallen, that business will find a big pay rise harder to cover compared to other with good productivity and less imports.

The SMH tells us that “As the cost of living increases, a report by the Australian National University shows one in four workers are struggling to get by.”

And if they lose their job, that number will get a hell of a lot worse.

Maybe Dr Phil got his rate rise right on Cup Day but I suspect he’s hoping for a little more help from Dr Jim in bringing down inflation. That’s why the Treasurer’s talk about regulation gas prices could be a big issue ASAP.

It could be good for consumers but bad for investors in energy companies.