Budget will be ‘ambitious’ despite inflation issues
Andrew Brown |
The upcoming federal budget will still have room for ambition, the treasurer says, despite higher-than-expected inflation likely reinforcing the need for more belt-tightening.
Underlying inflation rose to 3.4 per cent in January, giving the Reserve Bank more reason to lift interest rates, data released on Wednesday revealed.
While headline inflation remained steady at 3.8 per cent to start the year, the central bank looks more closely at the underlying figure when it sets rates.
Treasurer Jim Chalmers said inflation, along with issues on productivity, would “key factors and pressures” on the May federal budget.
“The budget will be an ambitious budget, and it will recognise the pressures on people,” he told ABC Radio on Thursday.
“All of this is about responsible economic management. People can expect to see more of that in May, and as part of that, there will be more savings.”
While the Reserve Bank is expected to keep rates on hold after hiking them to 3.85 per cent in February, the inflation figures reinforce a further rise is on the cards.
“We have made a lot of progress together as a country since the peak of inflation in 2022 but it’s higher than we’d like for longer than we’d like, and that means there’s more work to be done,” Dr Chalmers said.
Opposition Leader Angus Taylor said government spending had led to inflation being higher.
“(The treasurer) keeps putting band aids on bullet wounds, and this is what happens if you don’t solve the underlying problem. This government has completely failed to beat inflation. Inflation has beaten it,” he told Sky News.
“What we didn’t support was a government that was ramping up its spending endlessly, that was regulating the economy to a point where people have not invested what they need to and not doing what is necessary to be inflation.”
It comes ahead of the release of capital expenditure data for the final quarter of 2025, which will offer more insight into the economy.
Economists have tipped a drop in the rate for the December quarter as a previous spike in data centre equipment eases.
Westpac chief economist Luci Ellis said a fall of 0.5 per cent was predicted for the quarter.
“Weaker capital goods imports through the quarter, alongside a slowdown in short‑term expected capex growth, point to a decline in capex growth,” she said.
“We will be closely monitoring whether the investment pipeline is sustained across key sectors.”
The most recent figures showed capital expenditure growing 6.4 per cent in the September quarter, driven by data centre growth and investment in air transport.
It was the largest quarterly increase since March 2021.
AAP