As Australians deal with skyrocketing prices at the pump and in supermarkets, inflation is predicted to hit 7%.
Jim Chalmers, the treasurer, has issued a warning that inflation will increase and be “definitely greater” than the 5.1% rate recorded in the March quarter.
On Sunday, he declared on the ABC program Insiders, “Inflation will be much higher than what was anticipated in the most recent Budget.”
“Undoubtedly greater than the 5.1% we observed in the March quarter,”
He added: ‘This inflation problem will get more difficult before it starts to ease.’
Due in major part to supply chain disruptions, the massive quantity of money generated during the Covid epidemic, and high energy costs brought on by Russia’s war in Ukraine, most industrialized countries are currently experiencing severe inflation.
The Reserve Bank has predicted an interest rate of around 7%, which would be the highest since the quarter ending in June of 1990 (7.7%).
According to Dr. Chalmers, “The Reserve Bank has suggested something around seven percent and that doesn’t seem to be radically off the mark.”
Inflation is bad news for mortgage holders because the Reserve Bank will raise interest rates to bring it under control.
The market expects a 3.65 per cent interest rate by March 2023 with nine rate rises from the existing 0.85 per cent level.
The grave warning follows last week’s second-highest level in history for the national average price of unleaded gasoline, with every state and territory now paying more than $2 per litre.
According to the Australian Institute for Petroleum, in the week ending June 26, the national average price of gasoline increased 6.4 cents to 211.9 cents a litre.
This was just a little below the March high, when the government budget lowered gasoline excise by half for a six-month period, bringing down costs by 22 cents per liter.
On September 28, that tax relief will end.
Reserve Bank of Australia governor Philip Lowe believes inflation will slow down in 2023.
‘We have reasonable confidence that inflation will start trending lower next year,’ he said in a meeting in Switzerland on Friday.
‘The problems in the global economy from Covid are gradually being resolved.
‘That’s not to say we mightn’t get hit by another shock.’
Finance Minster Katy Gallagher said the cost of living was ‘through the roof’ and insisted Labor’s policies would help.
‘We have got cost of living going through the roof, we have got rising interest rates, we have got wages still stagnant and that is presenting some real challenges to people,’ she told Sky News on Monday.
‘The job for government is to look at how we can make our policies, our sensible investments drive the productive capacity of the economy.’
This includes Labor’s child care reform, skills training and taking advantage of the opportunities that emerge from renewable energy.
‘They are things that will help the economy in the long term without adding to inflation in the short term,’ Senator Gallagher said.
The Labor government is also looking at ‘sensible savings’ when it hands down its first budget in October.
Australia is at least benefiting from a commodity price boom as a result of the war in Ukraine.
The monthly financial statement released by the Department of Finance on Friday showed the underlying budget deficit was $33.4 billion in May, compared with a 2021/22 deficit of $79.8 billion forecast in the March budget.
Senator Gallagher welcomed the improvement given the budget Labor inherited was in ‘pretty rough shape’.
‘We are seeing improvements; it is in those areas that are highly volatile, around commodity prices, and we have seen some softening in those in the past week,’ she told told ABC radio.
‘We don’t expect (the budget improvement) will continue at this rate.’