Australia says inflation could move closer to RBA target range by end of year

The Australian government, preparing to announce the federal budget, said on Sunday that inflation could be brought back to the central bank’s target range of 2% to 3% by the end of the year, a decline faster than that expected in December.

The Labor government also lowered its economic growth forecasts.

In the December economic and fiscal outlook, the government projected that consumer price inflation would slow to 3.75% by mid-2024 and to 2.75% by mid-2025, which would bring it back within the Reserve Bank of Australia’s (RBA) target range.

On Sunday, the government said that according to official forecasts, headline inflation could reach the target range by the end of 2024.

RBA economists, on the other hand, forecast that inflation, which stood at 3.6% in the first quarter, will increase to 3.8% in June and remain at this level until the end of the ‘year.

Treasurer Jim Chalmers said on Sunday the budget he presents on Tuesday will prioritize efforts to tackle stubbornly high inflation, which has subjected many Australians to sustained pressure on the cost of living.

“Inflation is moderating in a welcome manner, but it is not mission accomplished as people are still under pressure,” Mr Chalmers said in his statement. “The budget will put downward pressure on inflation, not upward pressure on inflation.

On economic growth, the government said it forecast real gross domestic product growth of 2.0% for the 2024/25 financial year, below the 2.25% forecast in the December outlook, and 2.25% in 2025/26, below the previous forecast of 2.5%.

The economy has slowed due to the impact of global economic uncertainty, moderate but high inflation and higher interest rates, the government said.

The RBA has combatted persistent high inflation by raising interest rates by 425 basis points since May 2022, to 4.35%, its highest level in 12 years. (Reporting by Sam McKeith in Sydney; Editing by William Mallard)



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