(Bloomberg) -- Australia’s policymakers have achieved the dual-task of reining in inflation without significantly holding back domestic activity, setting the economy up for a soft landing, according to Treasurer Jim Chalmers.
“We’re getting that inflation rate down without ignoring the risks to growth, which are coming at us from an uncertain global environment and from some domestic sources as well,” Chalmers told Bloomberg Television’s Sonali Basak in an interview Thursday in Washington.
The country has made “quite extraordinary progress” in tamping down price pressures, he said on the sidelines of the International Monetary Fund and World Bank annual meetings.
The IMF has said Australia will need to curtail fiscal spending if disinflation stalls, with policymakers struggling to return price growth to within the Reserve Bank of Australia’s 2%-3% target.
The treasurer also touted the back-to-back budget surpluses the center-left Labor government of Anthony Albanese had achieved, in a bid to illustrate fiscal restraint.
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Australia is due to hold an election by May, and Labor is struggling in opinion polls with voters frustrated by stubborn price pressures. The central bank has kept its key interest rate at a 12-year high of 4.35%, defying a global shift to easing as it grapples with sticky inflation.
The RBA had pushed back the time frame for core inflation to return to the midpoint of its target to beyond 2026, and an extended stretch of robust hiring had traders paring back bets on the RBA’s first rate cut.
Australia is an unusual spot as economic growth has slowed to a crawl in response to elevated borrowing costs, yet unemployment is historically low and house prices are rising. The government will report third quarter inflation on Oct. 29.
“Some countries that have lower headline inflation than Australia have got much higher unemployment, or they’ve weaker growth, or some other combination of undesirable aspects of the economy,” Chalmers said.
China Ties
The Labor government has stabilized relations with top trading partner China since winning office in May 2022, generally keeping criticisms behind closed doors. For its part, Beijing has ended punitive trade actions imposed when ties deteriorated under the previous center-right administration.
As a result, curbs on lobsters, wine, coal and other goods have been lifted. Yet it seems unlikely the warm ties of a decade ago will resume given tensions in the Asia-Pacific between the US and China. Australia has tightened security ties with Washington and is rebuilding its military capacity accordingly.
“We’ve had our differences with China. We don’t pretend that they aren’t there,” Chalmers said. “We know that it’s a complex relationship, we know it needs ongoing management.”
--With assistance from Ben Westcott and Swati Pandey.
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