Inflation is set to return to the target band of below 3 per cent by the end of the year, .
Treasury predictions in the budget, which will be handed down on Tuesday, show inflation dropping to 2.75 per cent by December.
The forecasts also show inflation remaining at 2.75 per cent by the middle of 2025, before a further drop to 2.5 per cent by the end of that year.
The modelling in the budget shows inflation falling back to within the Reserve Bank’s target range of 2-3 per cent almost one year earlier than the bank had forecast at its May meeting.
Treasurer Jim Chalmers said inflation, which stands at 3.6 per cent for the year to the March quarter, was moderating faster than Treasury previously expected.
“The budget will put downward pressure on inflation, not upward pressure on inflation. Our budget will be part of the solution to the cost-of-living pressures, not part of the problem,” he said.
“Inflation is moderating in welcome ways, but it’s not mission accomplished because people are still under pressure.”
Inflation is moderating in welcome ways, but it’s not mission accomplished because people are still under pressure.
Jim Chalmers
Treasury predicted in December’s mid-year budget update that inflation would be at 3.75 per cent for the year to June 2024.
However, Chalmers’ third budget as treasurer is also set to show a softer outlook for growth in the years ahead, with GDP downgraded.
Real GDP growth is set to be 2 per cent in 2024/25 and 2.25 per cent in 2025/26, both being 0.25 per cent lower than previous Treasury forecasts.
While the forecasts show lower estimates for inflation, the budget papers say that there remains “considerable uncertainty around the outlook for the domestic and global economy”.
“Inflation is still the big near-term challenge in our economy, which is why the government is doing its bit in the budget,” Chalmers said.
The treasurer has indicated Tuesday’s budget will aim to balance cost of living relief measures alongside measures to reduce inflation.