Australians face a tense two weeks, with experts warning of a perfect storm as fresh inflation and interest rate figures collide with the Federal Budget, while conflict in the Middle East continues to simmer. The next Australian Consumer Price Index figures on inflation, covering March, are scheduled for release by the Australian Bureau of Statistics on April 30. They will be swiftly followed by the Reserve Bank of Australia's interest rate decision on May 5 and Treasurer Jim Chalmers' fifth federal budget on May 12.
Economist Warns of Inflation Spike
AMP chief economist Shane Oliver has issued a stark warning, predicting a sharp 1.5 per cent increase in monthly inflation. '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.'
Global Risks and Stagflation Concerns
Oliver cautioned that inflation risks are not just domestic. He highlighted a 'significant risk' that the Iran War could re-escalate if 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.'
He warned that while a bout of mild stagflation is baked in, the clock is 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: the 1973 Arab oil embargo and the 1979 Iranian Revolution.
Budget Balancing Act
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.
'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.'
Caution Against Populist Measures
Despite households calling for support to help with the rising cost of living, 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.'
