Inflation figures set to impact federal budget savings
The first round of inflation figures for the year is about to be released, with the results likely to affect how Treasurer Jim Chalmers hands down the budget.
Looming inflation figures could change how the federal budget is prepared, but the numbers are unlikely to ward off future interest rate hikes.
Economists are predicting a small downturn in inflation for January as they await the first round of figures for 2026 to be released by the Australian Bureau of Statistics on Wednesday.
Headline inflation, which sits at 3.8 per cent, is tipped to trend down to 3.6 per cent.
However, the trimmed mean, which removes volatile price swings, is expected to remain steady at 3.3 per cent.
The trimmed mean is the preferred measure of inflation by the Reserve Bank, which aims for a target of between two and three per cent.
Finance Minister Katy Gallagher said the figures would be closely watched.
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“We did see last month that inflation ticked up a little and we saw largely as a result of some of those temporary energy rebates coming off that influenced those,” she told ABC Radio on Wednesday.
“The job for the government remains the same, being conscious that the decisions we make right for the economic circumstances of the time. So we’ll see what that data says, and we’ll make decisions based around that.”
The biggest contributor to inflation for the month will likely be energy, with electricity rebates from governments coming to an end in December.
Month-on-month electricity prices are tipped to have risen as much as five per cent in January after cost-of-living measures wound up.
A fall in the cost of fuel and holiday travel is also expected to alleviate some inflationary pressures.
A small downturn was likely due to January traditionally being a slower month for inflation growth, Westpac senior economist Justin Smirk said.
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However, there would be some pressure points.
“We expect food to remain inflationary, with a solid contribution from the seasonal rise in fresh fruit and vegetables and non-alcoholic beverages,” he said.
“Health is also boosting our estimate with a 3.2 per cent increase in hospital and medical services.”
The federal budget is due to be handed down by Treasurer Jim Chalmers in May, as Senator Gallagher said the federal government was looking to find significant savings.
“That’s partly to ensure that we’re managing the budget properly. It’s also to try and find room to fund the things that we need to fund,” she said.
“There’s significant pressures coming from defence, in healthcare, in aged care, all of those areas that the demand is increasing, not decreasing.
“The responsible thing to do is to look at where you have existing expenditure and look to whether we can find savings to return that to budget.”
The stubborn rates of inflation have caused the Reserve Bank’s board to consider further interest rate rises.
The bank lifted the cash rate to 3.85 per cent in February, with further rises expected later in 2026.
The rise of inflation has also led to a decline in real wages for the first time in more than two years.
-with AAP
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