Treasurer Jim Chalmers revealed that his department expects inflation to reach levels not seen in 32 years.
The Treasury now expects headline inflation to hit 7.75% by the end of 2022, the highest since the March quarter of 1990.
This is even more serious than Reserve Bank of Australia Governor Philip Lowe’s forecast of 7% inflation by Christmas and more serious than ANZ’s forecast of inflation of 7, 4%.
But Prime Minister Treasurer Anthony Albanese said wages were not to blame for rising inflation, even with unemployment at a 48-year low of 3.5%.
“It’s about giving you the best possible idea of what’s really going on,” Dr Chalmers told parliament on Thursday.
“There is no point in tiptoeing in the face of the pressure people are under.
“(We cannot) pretend that our problems will solve themselves.”
Prime Minister Anthony Albanese’s treasurer Jim Chalmers has revealed his department expects inflation to reach levels not seen in 32 years
Inflation in the June quarter jumped 6.1%, the biggest increase since mid-2001 after gasoline prices hit $2 a liter following the invasion of Ukraine by Russia.
Historical inflation levels
JUNE 2022: 6.1%
MARCH 2022: 5.1%
JUNE 2001: 6.1%
DECEMBER 1990: 6.9%
JUNE 1990: 7.7%
MARCH 1990: 8.7%
JUNE 1987: 9.3%
Quarterly release of annual Australian Bureau of Statistics Consumer Price Index data
But when the one-time effects of the GST were removed, it was the most severe consumer price index since the December 1990 quarter.
Higher inflation means workers are set to suffer lower real wages, with the latest increase in headline inflation significantly outpacing the 5.2% minimum wage hike that took effect July 1 for some workers.
More than 2.5 million rewarded workers only received a 4.6% raise from the Fair Work Commission.
While the wage price index rose just 2.4% in the year to March, Dr Chalmers argued that there was no spiral of wages. wage prices pushing up inflation, as happened in the early 1980s.
“So the wages of Australian workers are not the cause of this inflation,” Dr Chalmers said.
Wage growth has been stuck below the long-term average of 3% since mid-2013.
Gross public debt is also approaching $1 trillion, limiting the ability of the new Labor government to pay for new cost-of-living relief measures.
ANZ Bank now expects unemployment, now at a 48-year low of 3.5%, to plunge to 2.9% in the first quarter of 2023 for the first time since 1974.
Borrowers in May, June and July took 1.25 percentage points off Reserve Bank of Australia rate hikes, the fastest rate of increase since 1994.
ANZ Bank expects the RBA to raise rates from an existing three-year high of 1.35% to a 10-year high of 3.35% by November, with rate hikes of 0 .5 percentage points in August, September, October and Melbourne Cup Day.
If that materialized, a borrower with an average mortgage of $600,000 would see their monthly payments $1,060 higher than they were in May, when the cash rate was still at an all-time high of 0.1%.
What borrowers could pay in November of each month compared to May
$500,000: Up to $883 from $1,922 to $2,805
$600,000: Up to $1,060 from $2,306 to $3,366
$700,000: Up to $1,236 from $2,691 to $3,927
$800,000: Up to $1,413 from $3,075 to $4,488
$900,000: Up to $1,590 from $3,459 to $5,049
$1,000,000: Up to $1,767 from $3,843 to $5,610
Calculations based on the cash rate dropping from a record high of 0.1% in May to 3.35% in November, as forecast by ANZ. Monthly repayments based on popular Commonwealth Bank floating rate increase from 2.29% to 5.39% expected