The claim about the cost of living that is now causing problems for Anthony Albanese

Anthony Albanese’s statement about Australia’s strong economic position has backfired as New Zealand has reduced its interest rates, now lower than Australia’s.

Amid a cost-of-living crisis, the Labor party has been emphasizing that Australia’s cash rate of 4.35 percent is comparatively lower than other developed countries that have also lowered their rates this year.

However, this argument has lost some ground as the Reserve Bank of New Zealand recently lowered its cash rate by 50 basis points to 4.25 percent, the third cut in 2024.

Just three weeks ago, the Prime Minister was crowing about how Australia still had lower interest rates than New Zealand.

‘We’re in difficult global economic times,’ Mr Albanese told reporters at Parliament House in Canberra.

‘This is the, you know, interest rates are higher in the United States, New Zealand, the UK, than they are here.’

Unlike Australia, New Zealand has much lower inflation which its central bank pointed out as it announced a half a percentage point rate cut.

‘Annual consumer price inflation has declined and is now close to the midpoint of the Monetary Policy Committee’s one to three per cent target band,’ the Reserve Bank of New Zealand said.

New Zealand’s central bank even suggested it would keep cutting interest rates in 2025.

‘Inflation expectations are also close to target and core inflation is converging to the midpoint. If economic conditions continue to evolve as projected, the committee expects to be able to lower the OCR further early next year,’ it said.

The RBNZ’s optimistic tone about the overnight cash rate is a stark contrast to the Reserve Bank of Australia which has hinted at another rate rise by ‘not ruling anything in or out’.

During the September quarter, New Zealand’s inflation rate of 2.2 per cent was much lower than Australia’s equivalent level of 2.8 per cent.

Australian borrowers are unlikely to get any relief until next year. 

The futures market isn’t expecting the Reserve Bank of Australia to cut rates until May next year – a forecast shared by Westpac and NAB.

Australia’s underlying inflation rate of 3.5 per cent in October was still above the RBA’s 2 to 3 per cent target when volatile and one-off price items like $300 electricity rebates were excluded.

RBA Governor Michele Bullock this month suggested too much government spending was adding to inflation.

‘I should emphasise here it’s not just the federal governments, it’s the state governments as well,’ she said.

‘So in the fact that we’ve had to revise up our public demand forecasts it’s reflected the fact that there’s been more announcements and more things going on.’

But Treasurer Jim Chalmers on Wednesday seized on the volatile, monthly data showing headline inflation rose by just 2.1 per cent.

‘This is another really encouraging sign our policies are helping to get inflation down after it was higher and rising under the Liberals,’ he said.

‘Today’s figures show monthly inflation has remained in the Reserve Bank’s target band for three consecutive months for the first time in almost five years.’ 

He left out the fact that $300 electricity rebates from the federal government saw power prices dive by 35.6 per cent over the year, as petrol prices plunged by 11.5 per cent.

The Reserve Bank is expecting headline inflation – also known as the consumer price index – to climb back to 3.7 per cent by the end of 2025 after Labor’s electricity rebates expire. 

New Zealand is far from the only advanced economy with lower interest rates than Australia. 

The Bank of Canada policy rate is even lower at 3.75 per cent – having cut rates four times this year.

The European Central Bank has an even lower marginal lending facility rate of 3.65 per cent – following three cuts in 2024.

The US Federal Reserve and the Bank of England have both cut rates twice in 2024.