According to recent projections from Australia’s Treasury, inflation could potentially return to the Reserve Bank of Australia’s (RBA) target band before the end of 2024, surpassing previous predictions made by both the government and the RBA itself. The Treasury’s updated forecast, announced ahead of the upcoming budget, suggests that inflation will fall within the RBA’s target range of 2% to 3% prior to the commencement of 2025. This projection is more optimistic than the RBA’s most recent figures, which predict that inflation won’t dip beneath 3% until late 2025. It should be noted, however, that the Treasury’s projections don’t take into account any potential policy changes introduced by Treasurer Jim Chalmers during the upcoming budget. Swaps traders anticipate that the RBA will maintain its current stance for the remainder of 2024 before implementing interest rate reductions during the middle of 2025. In terms of economic growth, the Treasury has reported lower forecasts for the next few years as compared to their December figures. Despite this, the current fiscal year’s anticipated growth rate hasn’t changed, remaining at 1.75%. By the 2024/25 fiscal year, projected growth will decrease to 2%, whereas Tuesday’s budget is expected to project growth of 2.25% for the following fiscal year (2025/26).
Earlier this month, the center-left Australian Labor Party, which is set to face elections within the next twelve months, pledged measures aimed at addressing voters’ concerns regarding rising costs and high interest rates. These steps include widespread tax cuts and significant funding for affordable housing initiatives. As the government grapples with mounting inflationary pressures, opposition parties have called for greater transparency surrounding proposed solutions, such as the potential use of emergency powers to combat price increases.
The Treasury’s updated inflation forecast comes as corporate executives warn of growing price pressures across various industries. Recent inflation readings in the United States have shown signs of improvement, yet bond traders are closely monitoring crucial inflation indicators, particularly the Consumer Price Index (CPI), which is scheduled for release on May 13. Some experts believe that if favorable economic data continues to emerge, the Federal Reserve may postpone interest rate reductions until late 2024 or possibly beyond.
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