Global inflation fight stirs risks for Australia, treasurer says

AUSTRALIA’S economy faces some “pretty tricky territory” in the near term as the world grapples with inflation and the pandemic’s aftermath, Treasurer Jim Chalmers said.

“The global economy is treading a narrower and more perilous path right now,” Chalmers told Bloomberg Television in an interview on Friday (Oct 14) at the International Monetary Fund’s (IMF) annual meeting in Washington.

“I’m relatively optimistic about Australia’s medium-term prospects, but in the near term, we’re going to have to navigate some pretty tricky territory,” he said, adding that the nation wouldn’t be spared if there is a global downturn.

Inflation was the biggest worry for officials at the IMF, Chalmers noted, with aggressive tightening of monetary policy raising the risk of a hard landing for some countries. Inflationary pressure “comes to us courtesy of the war in Ukraine”, he said, as well as “other issues around supply chains and the aftermath of the worst part of the pandemic”.

Rising prices have been a persistent concern around the world this year. On Thursday, US data showed core inflation measures rising to 40-year highs, prompting investors to harden bets that the Federal Reserve will raise rates by a further 75 basis points twice before the end of the year.

In Australia, consumer price growth has been less intense than elsewhere. The central bank surprised investors earlier this month with a smaller-than-expected interest rate hike after inflation eased slightly in August, although excluding volatile items such as fruit, vegetables and fuel from the official indicator showed the reading edging up.

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“The best defence against this global uncertainty is responsible budgeting and responsible economic management at home,” the treasurer said. “That’s our focus.”

On Oct 25, Chalmers will deliver the Labor government’s first annual budget since coming to power.

He told reporters in Canberra last week that his fiscal blueprint will aim to provide inflation relief to households and to invest in supply chains and skills training to help ease price pressures. He said the government would seek to avoid adding further demand to the economy, which might put pressure on the Reserve Bank of Australia. He has sought to play down expectations for the budget, describing it as a “bread and butter” document. BLOOMBERG