Inflation woes to cast shadow over next federal budget
Stubbornly high inflation is expected to affect the upcoming federal budget, and the treasurer is warning of austerity in the nation’s finances.
Data revealed that headline inflation rose to 3.4 percent in January, giving the Central Bank more reason to raise interest rates.
While annual inflation remains steady at 3.8 percent, the central bank is looking more closely at the underlying figure when setting rates.
Finance Minister Jim Chalmers said the federal budget would be rolled over in May due to higher-than-expected inflation, which would lead to spending restrictions.
“There will be austerity in the budget, we have made that very clear and there has been austerity in the first four budgets,” Dr Chalmers told ABC News.
“Every budget is presented within the framework of economic conditions.
“And current economic conditions are defined by inflation that is higher than we would like for longer than we would like.”
While the Central Bank is expected to keep interest rates constant after increasing them to 3.85 percent in February, inflation figures strengthen the possibility of a further increase.
Capital expenditure data for the last quarter of 2025 will be released on Thursday and will offer more information about the economy.
Economists predict rates will fall for the December quarter as earlier increases in data center equipment ease.
Westpac chief economist Luci Ellis said a 0.5 per cent decline was forecast for the quarter.
“Weakening capital goods imports during the quarter point to a decline in capital expenditure growth as well as a slowdown in short-term expected capital expenditure growth,” he said.
“We will closely monitor whether the investment pipeline is maintained in key sectors.”
The latest figures showed capital expenditure rose 6.4 per cent in the September quarter, driven by data center growth and investments in air transport.
This was the largest quarterly increase since March 2021.
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