The Washington-based IMF just published In its biannual world economic outlook, which said that central banks had scored a major achievement to return inflation to the pre-pandemic average without inflicting a global recession.
They go one to say that economic developments over the past four years have had a lot to do with how individual countries have deployed fiscal and monetary policies since the pandemic.
Australia’s choice to hold rates lower, whilst lifting government debt (across states and federally) with most new jobs created in the public sector, thus crimping productivity. This plus high migration has kept inflation well above band, and with little prospect of cuts any time soon, but so far have avoided a technical recession, although many households still are feeling the pinch.
New Zealand lifted rate faster and higher, and hit a recession, but is now cutting, has cut migration, and did not pump-up jobs in the public sector as Australia did. It will be interesting to see which strategy provides the better long-term outcomes.
But for now, the fear of entrenched inflation and higher interest rates for longer suggests that the inflation battle in Australia has yet to be won. And with an election due by May next year, this could well spell trouble for the current Government, though I am not sure the other mob are any better!
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