Australian Government Sees Inflation Pressing Toward Peak of Just Below 8%

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By James Glynn

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SYDNEY–Australian Treasurer Jim Chalmers has revised the government’s forecast for the peak in inflation sharply higher to just shy of 8%, highlighting the enormity of the task of taming rising costs of living.

Mr. Chalmers told parliament in a ministerial statement that he expects inflation to peak at 7.75% in the fourth quarter of this year, nearly double the forecast of 4.25% made in May.

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The economy will also slow and unemployment will rise as interest rates climb quickly this year and into 2023 to rein in the biggest inflation threat in more than a generation.

“More Australians are in more jobs than ever before–and that’s a very welcome outcome–but fewer Australians are feeling confident about the choppy waters our economy is in,” Mr. Chalmers said Thursday.

“Because they see the impact that high inflation is having on their living standards in an environment where workers aren’t getting wage rises sufficient to match price rises,” he added.

The government expects headline inflation at 5.5% by the middle of next year, 3.5% by the end of 2023 and 2.75% by the middle of 2024, back inside the RBA’s 2% to 3% target range.

“Inflation will unwind again, but not in an instant,” Mr. Chalmers said.

It is expected that real gross domestic product grew by 3.75% in 2021-2022, instead of the 4.25% estimated in May. GDP growth in 2022-2023 is expected to slow to 3.0%, he added.

“A key part of this weaker growth outlook is due to weaker consumption, reflecting higher inflation and higher interest rates,” Mr. Chalmers said.

“While some households have built up savings buffers, others are under much more pressure,” he added.

The new inflation forecasts follow data on Wednesday showing that consumer prices rose 6.1% in the second quarter from a year earlier.

The Reserve Bank of Australia’s governor, Philip Lowe, said earlier this month that interest rates will need to keep rising, estimating a neutral level for the official cash rate at 2.50%. That compares with the current 1.35%.

Money-market traders expect the cash rate will rise well beyond 3.0% by early 2023 as the RBA moves swiftly to get inflation back under control.

The US Federal Reserve raised interest rates by a further 75 basis points overnight to beat back the country’s highest inflation rate since the early 1980s.

The RBA is expected to raise interest rates by at least 50 basis points at its next policy meeting on Tuesday.

Mr. Chalmers said the government will update its fiscal forecasts in October, when it will deliver the 2022-2023 budget.

Write to James Glynn at [email protected]; @JamesGlynnWSJ


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