Inflation is likely to get worse before it gets better, prolonging the cost of living burden for debt-heavy and low-income households.
But Treasurer Jim Chalmers, who’s due to deliver a “confronting” economic statement to the nation on Thursday, has promised Australians the government is on the case.
Dr Chalmers was on Wednesday responding to a sharp jump in inflation to a new 21-year high in the 2021/22 financial year.
The consumer price index rose by 1.8 per cent in the June quarter, for an annual rate of 6.1 per cent, the Australian Bureau of Statistics reported.
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This means domestic inflation has soared by 100 basis points since the end of the March quarter when the annual rate was 5.1 per cent.
It was also the largest rise in the annual rate since the introduction of the GST, the bureau noted.
“We are not surprised to see inflation north of six per cent, but it’s still confronting,” Dr Chalmers said in Canberra on Wednesday.
“This inflation outcome today mirrors the lived experience of Australians who are doing it tough right now.”
Dr Chalmers warned the June quarter data does not include the rises in household and business energy bills that came into effect in July.
“Inflation is high and rising. It will get tougher before it gets easier,” he said.
The outcome on Wednesday was driven by the rising cost of fuel, food and groceries, housing and furnishings.
The pace of price growth in the food and non-alcoholic beverages segment was 5.9 per cent over the year.
Automotive fuel costs rose 32.1 per cent over the year, housing by nine per cent while furnishings, household equipment and services costs were up 6.3 per cent.
Within the housing segment, the cost for new owner-occupied dwellings was up 20.3 per cent over the year – the highest since the data series began in 1999.
Inflation is rising all over the world following the outbreak of war in Ukraine on the back of rising commodity and oil prices, which in turn is hitting manufacturing, transport and freight costs.
But Dr Chalmers said domestic factors were definitely in play, including supply chain bottlenecks.
“That’s why we are focused, as a government, in dealing with some of the supply chain issues which are pushing up inflation here in Australia, whether it be the issues around labour shortages or … the issues about a lack of resilience in our supply chains,” he said.
But Dr Chalmers again warned the government will not be able to afford to extend a temporary cut to the fuel excise past September, saying a six-month extension would cost about $3 billion.
“It is not possible, without budget constraints, to fund every good idea that people might have about cost of living relief,” he said.
“We need to tread a pretty careful path here when it comes to the budget.”
Dr Chalmers will update federal parliament on Thursday about the outlook for inflation.
Meanwhile, all eyes are now on the Reserve Bank of Australia and its meeting next Tuesday to discuss lifting the 1.35 per cent cash interest rate.
The market consensus is for a 50 basis point rise, which would take the cash rate to 1.85 per cent and prompt lenders to lift their variable mortgage and other rates.
The central bank is trying to crack down on domestic price pressures and return inflation to its two to three per cent target range.
Shadow treasurer Angus Taylor said the government had promised cost of living relief but was now telling Australians they would have to wait.
“It’s only getting harder for Australian households and the government has offered no real plan to address these challenges,” he said.