Treasurer: Inflation to peak at 7.75% in December quarter
Annual inflation is expected to peak at 7.75 per cent in the December quarter of this year after touching 6.1 per cent for the year to June, Treasurer Jim Chalmers said in his update on the economic outlook on Thursday.
“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,” he said.
“Treasury expects headline inflation at 5.5 per cent by the middle of next year, 3.5 per cent by the end of 2023 and 2.75 per cent by the middle of 2024, back inside the Reserve Bank of Australia’s target range. Inflation will unwind again, but not in an instant.”
Chalmer warned that higher interest rates combined with the global slowdown would affect Australia's economic growth.
“The national accounts in the March quarter showed that the economy had not been performing as strongly as had been predicted pre-election. We saw 0.8 per cent growth instead of the 1.8 per cent growth.”
Chalmers told Parliament that real GDP was predicted to have grown by 3.75 per cent in 2021/22, instead of 4.25 per cent estimated before the federal election.
“The pre‑election forecast for GDP growth in 2022‑23 was 3.5 per cent. This has now been revised down to 3 per cent growth. And growth is expected to slow further in 2023/24, at 2 per cent – down from the 2.5 per cent previously predicted.”
Chalmers said a key part of this weaker growth outlook was due to the weaker consumption that followed higher inflation and interest rates.
“While some households have built up savings buffers, others are under much more pressure,” he said.
According to Chalmers, the unemployment rate was anticipated to remain low through the latter half of this year before returning to 3.75 per cent by June 2023 and 4 per cent by June 2024.
“At the same time, the forecast for nominal wages growth is being upgraded – from 3.25 per cent to 3.75 per cent – both for this financial year and next financial year,” he said.
“If this eventuates – and I’m careful, cautious and conscious of the history here – it would be the fastest pace of nominal wages growth in about a decade.
“The harsh truth is that households won’t feel the benefits of higher wages while inflation eats up wage increases, and then some.”