Last stretch ‘will be the toughest ‘ in battle to curb inflation – Chalmers

The final stretch to wrangle inflation back to where the central bank wants it “will be the toughest”, Treasurer Jim Chalmers asserts following hotter consumer price numbers than expected.

Jun 28, 2024, updated Jun 28, 2024
Australian Treasurer Jim Chalmers speaks to the media during a press conference inside the Budget lockup  (AAP Image/Lukas Coch)

Australian Treasurer Jim Chalmers speaks to the media during a press conference inside the Budget lockup (AAP Image/Lukas Coch)

Inflation needed to “moderate further and faster” but the “last mile” back to the two-three per cent target band was never going to be smooth, Dr Chalmers said at the Citi A50 Australian Economic Forum in Sydney.

His remarks on Friday follow a higher-than-expected four per cent rise in inflation in the 12 months to May, which prompted economists to push out their expected timelines for interest rate cuts and warn another hike was back on the cards.

The treasurer said a bumpy last mile was a common experience internationally, with services inflation “generally slower to rise and will be slower to moderate”.

“Inflation ticked up before continuing to temper in the US,” he said in his speech.

“In Canada and the Euro area, it rose in the most recent data.”

Goods prices had already cooled as pandemic-induced supply chain shocks wore off and global markets started functioning as normal.

Reserve Bank of Australia deputy governor Andrew Hauser’s take on persistent services inflation was similar when queried at the same event on Thursday, with the senior central banker highlighting the pattern experienced internationally.

It would be a mistake to set interest rates on the basis of the stronger monthly inflation print alone, he added.

Between now and the next interest rate meeting in August, the board would also get the more comprehensive quarterly inflation numbers, Mr Hauser said, as well as statistics on jobs, retail and business conditions.

“It will be a bad mistake to set policy on the basis of one number and we don’t intend to do that,” he told the forum.

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Dr Chalmers also used his speech to preview an update on the government’s financial position as of May that’s expected to show a surplus within reach.

A federal budget surplus of $9.3 billion was forecast in the May budget for the 2023/24 financial year – the second in a row – and Dr Chalmers said his government was on track for another year in the black.

Yet he managed expectations about the likely size of the final outcome.

“The high figure you’ll see published today isn’t necessarily where we’ll end up,” he said.

“Some softness in our tax take, when compared to payments, might still result in a surplus that’s a bit smaller or a bit bigger than we forecast in the budget.”

With inflation proving persistent, the federal government is under pressure to prove it’s doing its bit to combat price growth and the treasurer says another surplus will be viewed favourably by the RBA.

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