Speaking at the Economic and Social Outlook Conference in Melbourne, Treasurer Jim Chalmers emphasised the severity of the inflation challenge which first surfaced alongside supply-side issues in the pandemic and became more arduous as Putin’s war upended energy markets.
“In Australia, we’re dealing with a mix of these, as well the effects of repeated flooding in parts of our country — human tragedies first and foremost, with impacts that are also felt through prices,” the Treasurer said.
“And inflation here will increasingly reflect the impacts of the war in Ukraine,” he noted.
Currently, energy prices are adding 0.8 percentage points to Australia’s headline inflation, compared to 4.2 in the Euro area and 3.1 in the UK.
But according to the Treasurer, energy’s contribution to domestic inflation will grow as retailers begin to renew wholesale contracts at a time when prices remain more than double their pre‑war average.
“This is expected to lead to the significant price hikes that were included in the Budget forecast last week,” the Treasurer said.
“And more persistent inflation than was previously projected — higher for longer,” he continued.
The longer-term solution to this, Mr Chalmers said, is “cheaper and cleaner energy”.
In the short term, however, he assured the Labor government is “considering all available options before us to help shield Australians from the worst of these prices”.
“Including options that may not have seemed palatable even in the recent past,” he said.
The Treasurer also reflected on last week’s budget, remarking that had the Labor government delivered the tax receipt windfall in payments to households, instead of returning it to the budget, “it would have compounded inflation, compelled the RBA to go harder, and sent the cost of living even higher”.
“Their work [Treasury analysis] indicates that inflation would have increased by up to an additional 0.5 percentage points over the next year, and interest rates would have been higher still, if we had gone down that path,” the Treasurer said.
“So our responsible budget — defined by its fiscal restraint — avoided adding to inflation, and addressed cost‑of‑living pressure in targeted ways,” he continued.
By returning the windfall, he said, “we’ll have more space to withstand future shocks”.
On Tuesday, the Reserve Bank (RBA) forecasted that inflation would climb to 8 per cent by December (up from 7.75 per cent) while lifting the cash rate to a nine-year high of 2.85 per cent. And the RBA plans to hike again, governor Philip Lowe warned, until inflation is on a steady path towards the 2 to 3 per cent target range.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
