Australia’s inflation rate to peak at 7.75% in December quarter, economic update predicts

by Peter Hannam
Treasurer Jim Chalmers tells parliament that nation is facing a ‘once-in-a-generation’ challenge and real wages won’t grow until 2023/24 fiscal year

Australia’s inflation will peak at an annual pace of 7.75% by the December quarter of 2022 and fall gradually, allowing wage growth to begin providing workers with real salary increases by the 2023-24 fiscal year, the treasurer, Jim Chalmers, has said in his economic statement.

Describing the nation as facing both “once-in-a-generation” challenges and opportunities, Chalmers used his statement to Parliament on Thursday to provide updated economic forecasts as well as reiterate priorities for the new government.

As reported earlier, “headwinds”, particularly from overseas, prompted Treasury to slice half a percentage point off GDP growth estimates for the fiscal year that just ended, the current one and next year.

Chalmers’ speech is his first major one since taking on the role after Labor’s May election win. It helps set out the government’s priorities ahead of a planned jobs summit at the start of September and a formal budget in October.

While slower growth would dent the revenues, the government would inherit a budget that ended 2021/22 with “a dramatically better-than-expected outcome”, Chalmers said. Final figures would be released soon.

That result, though, was one of the few that will likely be better than forecast by Treasury ahead of the 21 May federal election. Inflation, in particular, will be higher for longer.

While the pre-election economic and fiscal outlook, for instance, predicted the consumer price index would be running at 4.25% by the end of June, yesterday’s data release showed it had accelerated instead to 6.1%.

By the year’s end, though, the headline CPI number will have quickened further to 7.75%, a number that was last exceeded in the March quarter of 1990 when it was 8.7%.

Instead of subsiding to 3% by next June, Treasury now expects it to still be running at an annual pace of 5.5% before sinking to half that, or 2.75% by June 2024.

By then, though, real wages will finally be growing faster than CPI, with 3.75% growth expected. Before then, however, real wages will continue to shrink, an issue Chalmers was at pains to blame on the previous near-decade of Coalition rule.

“In the year to March, real wages fell 2.7% – the worst result in more than two decades,” Chalmers said, adding that the slide will be shown to have accelerated further when June quarter wage numbers land on 17 August.

“The wages of Australian workers are not causing this inflation,” he said. “The fault lies with a decade of wasted opportunities, wrong priorities and wilful neglect – that Australians are all now paying for.”

Australia’s challenges include slowing global growth particularly in the US – where the US federal reserve again raised rates overnight – and China. Treasury trimmed its estimate of global expansion by half a percentage point to 3.25% for 2022 and 2023.

Chalmers also noted the International Monetary Fund now expects global inflation to reach 8.3% by the end of this year driven by higher food and energy prices, and strained supply chains.