Inflation not yet reached peak, Chalmers says

By Tom Ravlic

July 29, 2022

Jim Chalmers
Treasurer Jim Chalmers.  (AAP Image/Mick Tsikas)

Updated forecasts from federal Treasury show inflation will hit 7.75% before the year ends, with no reprieve expected until next year.

In his ministerial statement delivered to parliament on Thursday, treasurer Jim Chalmers said that while the pre-election forecasts published by Treasury suggested inflation would peak at 4.25%, the picture has turned grimmer, with inflation hitting new highs.

“It’s already at 6.1% through the year to June, and now is forecast to peak at 7.75% in the December quarter this year,” Chalmers said.

“The current expectation is that it will get worse this year, moderate next year and normalise the year after. We haven’t reached the peak yet, but we can see it from here.”

Chalmers said Treasury forecasts expect that headline inflation will hit 5.5% by the middle of 2023, 3.5% by the end of 2023 and then go down to 2.75% by the middle of 2024.

“Inflation will unwind again, but not in an instant. Just as the domestic forces contributing to some of the supply-side pressures have been building for the best part of a decade, it will take some time for them to dissipate — but they will,” Chalmers said.

The treasurer acknowledged the various global pressures, including the war in Ukraine and the coronavirus pandemic, that have played a role in the economic conditions being experienced by Australians as well as trillion dollars of government debt that “will take generations to pay off — without a generational dividend to accompany it”.

The ministerial statement says the unemployment rate is expected to remain at a record low before it goes back up to 3.75% by June 2023 and then up to 4% a year later.

A forecast for wages growth was upgraded, Chalmers said, and that it is being increased to 3.75% from 3.25%.

The treasurer said households would not necessarily see the benefits of nominal wage rises for some time.

“The harsh truth is that households won’t feel the benefits of higher wages while inflation eats up these wage increases, and then some. Real wages growth relies on moderating inflation and getting wages moving again,” Chalmers said.

“On the basis of current forecasts, real wages are expected to start growing again in 2023-24. But there is a key difference now. Australian workers now have a government with an economic plan to boost wages, not deliberately undermine them.”

Shadow treasurer Angus Taylor told parliament that the ministerial statement was “heavy on politics, heavy on excuses and short on a plan”.

“No government can control all of the circumstances and the context that it faces. We accept that. But all governments can be proactive in their responses,” Taylor said.

“Government is all about tough decisions in tough circumstances. In the budget earlier this year, we put in place measures to support Australians by delivering cost-of-living payments, cheaper fuel and cheaper medicines.”

Taylor said the opposition was pleased to see the government acknowledge the global factors involved in the current economic situation faced by Australians but that the government could do more than simply say things are going to get tougher.

“We’re not suggesting that Labor can change those global circumstances — of course they can’t — but they can put the national interest first, ahead of pet projects, ahead of ideological fixations and ahead of vested interests,” Taylor said.


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