Jim Chalmers has warned Australians to prepare for inflation to get worse and interest rates to rise even higher before cost-of-living pressures recede.
The Treasurer acknowledged on Tuesday that the Reserve Bank now expects inflation to peak at about 8 per cent by the end of the year, higher than the 7.75 per cent forecast by Treasury.
“Higher inflation and higher interest rates coming with it means that the pressure is coming on Australians from around the world,” Mr Chalmers said.
“I think Australians already know that the cost of living is high and getting higher. The Reserve Bank’s new forecast for inflation reflects that.”
Mr Chalmers spoke to reporters in Sydney shortly after the central bank lifted Australia’s official interest rate for a seventh consecutive month.
The Reserve Bank’s board decided at its monthly meeting to lift the cash rate target by 0.25 per cent — in line with market expectations — to 2.85 per cent.
RBA governor Philip Lowe signalled the bank would further tighten monetary policy to try to rein in inflation, which he said was still “too high” in Australia.
“The board expects to increase interest rates further over the period ahead,” he said.
“It is closely monitoring the global economy, household spending and wage and price-setting behaviour.”
Over the year to September, the consumer price index measuring the nation’s official inflation rate was 7.3 per cent, the highest it has been in more than three decades.
Mr Chalmers — who has previously framed inflation as Australia’s “public enemy no. 1” — repeated this message on Tuesday as he again defended his “restrained” first federal budget.
“When inflation and interest rates are rising, it’s more important than ever that the budget is responsible, restrained, and right for the times,” he said.
“And that’s what our budget is. We knew when we put the budget together that inflation was high and rising.”
Labor’s first budget focused on belt-tightening and starting to fund key election promises while servicing the costs of government debt and public services.
It offered nothing new in the way of immediate cost of living relief, such as cash handouts, which Mr Chalmers said would have further fuelled inflation.
Opposition treasury spokesman Angus Taylor said Australians were “hurting” and Labor had failed to outline a plan to take pressure off interest rates in its first budget.
“Australians have been told their power bills are going up by more than 50 per cent, their mortgage payments will continue to rise, the cost of groceries will remain high, inflation will continue to surge,” Mr Taylor said after the RBA’s decision on Tuesday.
“And yet the Government still has no plan to tackle this cost of living crisis.”
Mr Taylor said the budget was a “missed opportunity” to help Australians when they really needed it.
Speaking to reporters at Parliament House in Canberra, Mr Taylor said: “Labor has an excuse for everything and a plan for nothing, they really do.”
Mr Taylor didn’t offer any concrete policies the Coalition would implement to put downwards pressure on inflation and interest rates if it were in government, beyond what he said was the need to “balance the budget”.