Australians are bracing for a turbulent fortnight as a confluence of new inflation data, interest rate decisions, and the Federal Budget announcement is set to create economic uncertainty. This period of heightened tension is further intensified by ongoing unrest in the Middle East.
The Australian Bureau of Statistics is poised to release the latest Consumer Price Index (CPI) figures for March on April 30, providing a snapshot of the country’s inflation status. This will be followed closely by the Reserve Bank of Australia’s (RBA) upcoming interest rate decision slated for May 5, and shortly thereafter by Treasurer Jim Chalmers’ presentation of the federal budget on May 12.
Shane Oliver, the chief economist at AMP, has sounded an alarm about the potential for a significant 1.5 percent rise in monthly inflation. Speaking to the Daily Mail on Saturday, Oliver conveyed his concerns about an impending spike in inflation.
He attributes this anticipated rise largely to a substantial 30 percent surge in fuel prices during March, which he estimates could contribute over a full percentage point to the inflation rate. This increase could push the annual inflation rate above 5 percent, potentially compelling the RBA to implement interest rate hikes.
‘We are going to see a spike,’ he told the Daily Mail on Saturday.
He predicts that fuel prices jumping by around 30 per cent in March could add more than a full percentage point to inflation, lifting it past 5 per cent year-on-year and forcing the RBA to raise rates.
‘It seems that it is not just higher fuel prices and fuel levies that are on the way up, but everything from airfares to toilets,’ he said.
‘(But) it was welcome news to see the Federal Government moving to rein in the rapid growth in spending on the NDIS.
Already battered families are bracing for another brutal hit, with economists warning the cost-of-living crisis is set to worsen considerably (stock image)
Economist Shane Oliver (pictured) said that not only fuel prices are on the rise, but also everything from airfares to toilets
‘Government spending has been a major reason behind Australia’s cost of living and inflation problem and the blowout in spending on the NDIS has been part of that.’
Oliver has cautioned that inflation risks are not just coming from within Australia, adding that there is still a ‘significant risk’ the Iran War could re-escalate if agreement on a deal is not reached soon.
‘Trump’s demeaning and humiliating social media posts may also be encouraging Iran to dig in,’ he said.
‘The key thing to watch remains the Strait of Hormuz and, despite a brief spike in ship traffic a week ago, it remains effectively closed.
‘While a bout of mild stagflation is baked in, the clock is now ticking on whether this turns into a more severe bout like that seen in the 1970s.’
The 1970s fuel crisis consisted of two major supply shocks: In 1973, an embargo was issued by Arab oil producers on Western nations supporting Israel during the Yom Kippur War. A second crisis in 1979 was prompted by the Iranian Revolution.
Treasurer Jim Chalmers faces pressure to provide genuine relief to Australians in the May 12 Federal Budget, balancing spending restraint and the need to avoid stoking further inflation.
Chalmers has stated that it will be an ‘ambitious’ budget, prioritising intergenerational equity and tackling NDIS expenditure.
Treasurer Jim Chalmers (pictured) faces a delicate balancing act: providing meaningful relief in the Federal Budget while curbing spending
‘There’ll be tax reform, there’ll be a productivity push, and there will be savings,’ Chalmers told reporters last week.
‘Cutting compliance costs is a big focus of the government and a big focus of the budget as well.
‘It won’t have every single idea that’s been pitched to us over the last 12 months or so, but it will be ambitious in its breadth and in its depth as well.’
Despite households calling for support to help with the rising cost-of-living, Mr Oliver warned the government against announcing short‑term populist measures.
‘Some sort of cost-of-living relief to deal with the impact of the war looks likely,’ he said.
‘Any cost-of-living relief or economic stimulus should be modest and targeted to those who really need it – such as low income earners and businesses with high energy cost exposure that could fold.
‘The pandemic stimulus was timely, but not well targeted, and was arguably more than needed, which contributed to the inflation problem we had when the economy reopened.’
