Inflation Warnings Ahead: Impact on the Federal Budget - triSearch

Inflation Warnings Ahead: Impact on the Federal Budget

By Poppy Johnston

The Reserve Bank has warned the path to bring inflation down will be bumpy, complicating the economic backdrop for the upcoming federal budget.

Inflation has not been beaten, as the Reserve Bank has reminded Australians, and the federal treasurer will be under pressure to help not hinder the central bank as he prepares to hand down his third budget.

The central bank board kept interest rate on hold at 4.35 per cent on Tuesday, as widely expected, yet remains “alert and vigilant” to emerging price pressures.

The RBA’s refreshed economic forecasts – unveiled at the same time as the decision – revealed sharp upgrades to its near term inflation forecasts, largely driven by rising petrol prices and strength in the jobs market. 

With less than a week to go before the federal budget, the opposition and some economists have been warning Labor to keep its spending in check to avoid pushing up inflation.

Opposition finance spokesperson Jane Hume said the budget would put the government’s economic management to the test. 

“The question for Jim Chalmers is going to be, can he deliver a budget next week that can respond to these revelations of the RBA today?” she told reporters on Tuesday.

“Can he deliver a budget that is going to bring us back to basics on our economics, restore our budget discipline and our fiscal responsibility and our honesty?”

Dr Chalmers said his chief focus in the near term remained taming inflation.

He said the RBA’s forecasts did not account for measures set to be announced in the budget.

“The May budget will be carefully calibrated to the economic circumstances, striking the right balance between getting inflation under control, easing cost-of-living pressures, supporting sustainable growth and building fiscal buffers in an uncertain global environment,” he told reporters on Tuesday.

Earlier in the week, Dr Chalmers said both “scorched earth austerity” and “free-for-all-spending” needed to be avoided, noting the economy was also dealing with slowing growth as well as persistent inflation.

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