Households can expect significant additional cost-of-living pressures because of the war in the Middle East, with Jim Chalmers confirming that the government expects inflation to rise beyond 4.5 per cent in Australia. Source: The Guardian.
But the Treasurer said he did not expect the economy to fall into recession because of the war sparked by US and Israeli bombings in Iran.
Now at 3.8 per cent and putting pressure on the Reserve Bank to lift interest rates as soon as this week, inflation could peak at the “mid to high fours” according to Treasury modelling, Mr Chalmers said.
Speaking on Sky News on Sunday, he was asked about National Australia Bank forecasts that inflation could peak above 5 per cent in the next quarter.
“We’ve run a couple of scenarios which make it clear on some realistic assumptions about global oil prices and how that would potentially flow through to inflation, and for how long,” he said.
“If we were putting pencils down on those forecasts today, we’d have inflation peaking somewhere between the mid to high fours, which isn’t far off some of those private forecasts.”
Just how long the conflict continued would be critical to the economy hit, Mr Chalmers said.
But recession – two consecutive quarters of negative economic growth – was not something the federal government was “anticipating or expecting”.
“If you look at the scenarios that Treasury has already run, they expect there to be a hit to growth but not a hit to growth that would deliver, you know, a shrinking economy in the quarters to come,” Mr Chalmers said.
“Again, there are a lot of unknowns, there’s a lot of volatility. There’s a lot of uncertainty that existed even before the dramatic escalation of hostilities in the Middle East a couple of weeks ago.”
The Reserve Bank board, who aim to bring inflation back within the RBA’s 2 per cent to 2 per cent target, will meet this week to consider the cash rate. Economists at the big four banks are tipping an increase, followed by another in May – a decision due days before the May 12 budget.
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No recession but inflation hike and increased cost-of-living pressure on the way, Jim Chalmers says (Tom McIlroy, The Guardian)
