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2025-12-17 10:24:01
[Australian Government Significantly Raises Inflation Forecast for the Fiscal Year Ending June 2026] 1. In its latest mid-year economic and fiscal outlook report, the Australian government significantly raised its inflation forecast for the fiscal year ending June 2026, from 3% in the March budget to 3.75%, reflecting continued upward pressure on prices recently. 2. The report also increased annual spending by A$9.1 billion. While strong economic growth pushed nominal GDP forecasts up to 5.25% and generated approximately A$15 billion in additional tax revenue, the increased spending partially offset this gain, resulting in a budget deficit only slightly lower than the previously projected A$36.8 billion. 3. The Treasury noted that rising inflation is similar to trends in many developed economies, driven in part by temporary factors, but inflation in the services sector and rising new home prices are likely to be more persistent. This situation increases pressure on monetary policy, with market expectations shifting towards tightening – both National Australia Bank and Commonwealth Bank predict interest rate hikes in February next year, and Westpac has abandoned its expectations of rate cuts. Meanwhile, the Treasury projects economic growth to rebound to 2.25% this fiscal year, slightly above the central bank's trend growth rate, which could further exacerbate inflationary pressures; the unemployment rate is expected to rise slightly to 4.5%. The medium- to long-term fiscal outlook shows a cumulative deficit of A$106.6 billion over the three-year fiscal year ending in 2028/29, largely unchanged from the March forecast.
