Australia will have to control fiscal spending if inflation does not decline furtherthe International Monetary Fund said, countering government claims that its policies are not impacting price pressures.
“A pre-announced personal income tax cut and new spending items, including broad cost-of-living support, are expected to contribute to the budget turning into a deficit”the IMF said in the final statement of its 2024 Article IV Mission on Thursday. Energy discounts and other measures “may inject some additional stimulus into the broader economy.”
The assessment of the fund will be a blow to Treasurer Jim Chalmers, who insists that increased spending is not to blame for sticky prices. Australia is struggling with the so-called last leg of returning inflation to the Reserve Bank’s 2-3% target and, as a result, has refrained from joining a cycle of global monetary policy easing.
The IMF backed the RBA’s decision to keep interest rates at a 12-year high of 4.35%.even as the Federal Reserve last month embarked on easing with a half-percentage point rate cut.
“Still persistent inflation and emerging upside risks emphasize the importance of a restrictive monetary stance until the inflation outlook is sustainably aligned with the target range.or,” he stated.
Chalmers responded to the report by reiterating that the government is trying to help control inflation while helping households struggling with higher costs.
“The government’s primary objective is to address the challenge of inflation without ignoring the risks to growth,” he said in a statement. ““Our focus is on easing the cost of living and combating inflation while laying the foundation for a stronger economy for the future.”
