Inflation in Australia Could Rise Above 4.5%
Australian households may face another round of cost-of-living pressure as inflation rises because of the growing conflict in the Middle East.
Treasurer Jim Chalmers says government modelling suggests inflation could climb to the “mid to high fours”, meaning above 4.5%.
The warning comes as the Reserve Bank of Australia (RBA) prepares to meet this week to decide whether interest rates should rise again.
Why prices could increase
Inflation in Australia currently sits at 3.8%, but rising global oil prices linked to the Middle East conflict are expected to push costs higher.
Treasury modelling suggests the spike in energy costs could flow through the economy, raising prices for fuel, transport and everyday goods.
Speaking on Sky News, Chalmers said the government had analysed several scenarios.
“If we were putting pencils down on those forecasts today, we’d have inflation peaking somewhere between the mid to high fours,” he said.
Private bank forecasts have also warned inflation could move above 5% in the coming months.
Interest rate pressure building
The Reserve Bank aims to keep inflation within a 2–3% target range.
Because inflation remains above that level, economists at major banks believe the RBA may raise the cash rate this week, with another possible increase expected in May.
Any rate increase would directly affect mortgage holders and renters already dealing with high living costs.
The decision will come just days before the federal government delivers its 12 May budget.
Government says recession unlikely
Despite the inflation warning, Chalmers said the government does not expect Australia to fall into recession.
A recession is defined as two consecutive quarters of negative economic growth.
Treasury modelling indicates economic growth could slow due to global instability, but not enough to push the economy into contraction.
“There are a lot of unknowns and a lot of volatility,” Chalmers said.
Fuel concerns and supply pressures
The Middle East conflict has also raised concerns about global energy supply, particularly around the Strait of Hormuz, a key shipping route for oil.
Australia’s government says the country currently has about 36 days of petrol supply and 32 days of diesel supply in reserve.
Energy Minister Chris Bowen recently reduced minimum stock requirements for fuel companies to help ensure supply reaches regional Australia.
Political debate over interest rates
Some politicians argue that raising interest rates will not solve the underlying problem.
Greens leader Larissa Waters urged the Reserve Bank not to increase rates.
She said the inflation surge is largely caused by global supply shocks linked to the war.
Meanwhile, Barnaby Joyce has suggested Australia should contribute to international efforts to protect shipping routes by sending a navy ship to the Middle East.
What it means for Australians
For many households, the biggest concern will be the combined impact of higher petrol prices, rising groceries and possible mortgage increases.
While the government believes the economy can avoid recession, the coming months may still bring significant financial pressure for Australian families.