An already-fraught economic backdrop for the Albanese government's third federal budget has been complicated by hotter-than-expected inflation data.
Consumers were slugged with price hikes for hard-to-avoid expenses such as rents, education fees, insurance and medical bills in the first three months of the year, latest data from the Australian Bureau of Statistics shows.
On a quarterly basis, inflation accelerated from 0.6 per cent in the three months to December, as expected, but the one per cent lift through to March was above the 0.8 per cent consensus forecast.
Yet annually, inflation moderated further in March, from 4.1 per cent to 3.6 per cent, but by more than the 3.5 per cent pencilled in by forecasters.
With price pressures lingering and growth subdued, Deloitte Access Economics partner Stephen Smith said the treasurer would be treading a tightrope.
"(March quarter inflation data) underscores the difficulty of the high-wire act the treasurer must perform when handing down the budget next month, balancing the need to provide cost of living relief for households while positioning the Australian economy for a pivot to growth after months of inertia," he said.
Treasurer Jim Chalmers says managing inflation remains his priority in the May budget and is angling for a second surplus to help weigh on price pressures.
There may be some additional cost of living relief, but Dr Chalmers stresses it will be carefully targeted so it "helps takes some of the edge off inflation" rather than adds to it, much like the energy bill relief from last year.
Yet he also says the balance of risks are shifting and the budget will also focus on laying the foundations for economic growth though measures like its wide-ranging Future Made in Australia Act aimed at firing up low carbon industries.
Mr Smith said if the government fails to pivot to growth, investment and productivity would languish and undermine Australia's medium term prosperity.
The hotter-than-expected inflation data has also dimmed the likelihood of interest rate cuts starting before late this year, with EY chief economist Cherelle Murphy saying this could leave the government with little room to move.
"Any additional discretionary public spending will likely to be read as unwarranted by a household sector hoping for rate cuts," she said.
Shadow treasurer Angus Taylor warned the government to keep budget spending restrained or risk driving up inflation and keeping interest rates high, putting more pressure on households.
"We've got a situation right now, where the government has the foot on the accelerator, and it seems to be pressing harder on the accelerator, as the Reserve Bank has the foot on the brake, and the fear is that they're going to have to press harder to fight against the government," he told reporters on Wednesday
Australian Associated Press
