A senior Treasury official said inflation won’t return to the Reserve Bank’s tolerance range “immediately” but will stabilize within two years.
Secretary of State Stephen Kennedy said inflation is expected to slow to 3.25% by the end of June 2024 and fall to 2.75% next year.
He also dismissed claims of a wage-price spiral, which the RBA had warned was likely in the face of persistently high inflation and strong wage growth.
Kennedy said in his opening statement at a Senate budget hearing on Tuesday that a tight labor market was pushing nominal wage growth.
The wage price index rose 3.75% in the 12 months to the end of June and is expected to rise to 4% by the middle of next year.
The RBA said higher labor prices risked undoing its formidable efforts of 11 cash rate hikes to curb inflation.
But Mr. Kennedy said there was “no sign of a further wage-price spiral.”
“Medium-term inflation expectations remain firmly entrenched, and it is normal for wage growth to accelerate during upturns in the business cycle,” he said.
With real wage growth expected by the end of March 2024, Kennedy acknowledged that continued high inflation and rising interest rates have “pressured” household incomes and weighed on consumer spending. .
“The impact of rising interest rates and The rise in inflation varies markedly by household,” he said.
“Some people with large mortgages or limited savings may find the conditions tough.
“Moreover, a high-inflation environment could be more difficult for low-income earners, especially if inflation is concentrated in key commodities such as food, energy and housing costs. Linking government payments to inflation would provide some protection. ”
Kennedy said cost-of-living measures announced by the government in this month’s budget, including electricity price subsidies, would not add to inflationary pressures.
He said national average retail electricity prices were projected to rise by 10% in 2023-24 as a result of government intervention in gas and electricity markets, down from an estimate of 36% at the end of last year. Gasoline prices are expected to rise by 4% compared to the 20% estimate in the October budget.
In his opening statement, Kennedy also said investment in new homes is expected to shrink by 2.5% this year, 3.5% in 2023-25 and 1.5% in 2024-25.
Rising immigration arrivals are likely to support housing investment demand, he said.
He noted that national vacancy rates are near a record low of 1%, while posted rents are up at 10.1%.
Kennedy and his colleagues at the Treasury Department will face harsh sentences throughout Wednesday.
https://www.theaustralian.com.au/breaking-news/treasury-secretary-steven-kennedy-grilled-at-senate-estimates-on-inflation-wage-price-spiral/news-story/802d30823e3d674f0fcd9647b62b542d Treasury Secretary Steven Kennedy lashes out at Senate inflation estimates