Treasury Set To Lower Growth Forecasts

Australian petrol prices have risen 60 cents per litre since the United States and Israel struck Iran, adding $36 to the cost of filling a 60-litre tank. A family refilling weekly pays $144 more per month than in February. The global benchmark oil price reached US$113 a barrel overnight, near its April peak of nearly US$120.

Treasurer Jim Chalmers said on Friday that Treasury officials are lowering their forecasts ahead of the mid-year budget update in December. Slower growth and higher unemployment are now expected. A week earlier, in a speech, Chalmers had said the economy would be "a bit better" in a year.

Chalmers told Politico that pressures on households are substantial. "The pressures on people right now are very substantial and obviously that keeps me awake at night," he said. He noted that some causes lie beyond the government's control while others it can influence, including cost-of-living measures and budget management. He said, "we're hostage as well to decisions taken in DC or Tehran or in Eastern Europe about two wars which are pushing up inflation around the world and weighing on growth around the world."

The New York Times reported overnight that the United States and Israel have drawn up plans to resume attacks on Iran after the American midterm elections. Analysts at Westpac outlined a scenario in which oil approaches US$150, echoing warnings the International Monetary Fund issued earlier this month. A fifth rate decision is possible on 3 November.

Andrew Hauser of the Reserve Bank described the combination of high inflation, low growth and rising unemployment as a central banker's "nightmare". He has also called it a "world of hard choices". Heavy spending on artificial intelligence has supported the global economy, but investors have grown uneasy about rising debt among companies building that infrastructure; another steep sell-off hit Wall Street overnight.

Chalmers could temporarily cut the fuel excise to lower petrol prices, though the cost would complicate the Reserve Bank's inflation work. Alternatively, the December update could carry large spending cuts, which would aid the central bank but weigh on a weak economy and lift unemployment. High government spending and flat productivity growth are also constraining the position.