December's CPI result didn't come as a great surprise, although no one will be happy about that. On a headline basis, annual inflation of 3.8% took us back to June 2024, and even on the RBA's preferred trimmed mean measure of 3.3%, it was back to December 2024. Either way, it was a continuation of a move in the wrong direction, and it raises a couple of uncomfortable questions:

Firstly - and this is not so much a question as a fact, albeit with the benefit of hindsight - did the RBA cut rates once too often last August?  And if so, was it partially due to the pressure from some noted economists, some in the media, and, of course, the Treasurer, Jim Chalmers, who had previously blamed the RBA for "smashing the economy" for not cutting rates as he wished?

True to form for a politician, this week Chalmers denied any responsibility for the latest figures, having previously claimed credit for the RBA's 3 rate cuts in 2025, one of them just in time for last year's election. In response to the 3.8% result on Wednesday, he claimed:

"What's very clear from this data is that it reflects a resurgence in the private sector and not an increase in public sector spending. If our budget was the problem, if public spending was the problem, then we wouldn't have seen three interest rate cuts last year."

That's a touch like wanting to have your cake and eat it - take the credit when it suits you, and deny, deny, deny when it doesn't. What is also now fully transparent is that the government's handouts to reduce power bills simply papered over the underlying problem.

Which brings us to the second uncomfortable question: Is the RBA's preferred inflation band of 2-3% actually attainable, or is inflation of 3-4% (or worse) a more realistic long-term reality?

Meanwhile, in the short term, the focus will be on the RBA's decision next Tuesday. The consensus is that the RBA needs to nip the uptick in inflation in the bud, even though it will confirm that its decision last August was a mistake, as predicted at that time by Hedge Clippings' expert fund manager panel, Renny Ellis from Arculus, and Nick Chaplin from Seed Funds Management.

Far from the view in some quarters back in August that we'd have three more rate cuts by June this year, possibly taking them below 3%, there's talk in some quarters that there might be three increases by the end of the year. If that comes to pass, even Jim Chalmers won't be able to claim he wasn't responsible.