New Treasurer Jim Chalmers warns that inflation and cost of living will rise

Australians should brace themselves for more cost-of-living hikes, with new Treasurer Jim Chalmers warning inflation is running ‘significantly higher’ than predicted.

Australians should brace themselves for more cost-of-living hikes, with new Treasurer Jim Chalmers warning inflation is now running at a “significantly higher” rate than the 5.1 per cent announced in April.

In a move that could put more pressure on interest rates, Mr Chalmers told News Corp that when parliament resumes late next month he will reveal a big ­inflation jump to parliament.

“It’s now really clear that the inflation challenge that Australians are facing is worse than what was factored in by the former government at the election and in their most ­recent budget,” he said.

“It is highly likely that I will have to change the inflation forecasts in the statement that I give to the parliament when it returns.

“I’m working with the Treasury on it now, but people should anticipate that it will be higher than it is now. Significantly higher.”

Treasurer Jim Chalmers has issued a warning on inflation and cost of living. Picture: NCA NewsWire/Andrew Taylor

The official warning that inflation has galloped well ahead of the 5.1 per cent announced in April could force the Reserve Bank to tighten interest rates even faster than flagged.

When it raised interest rates in May, the bank said it was ­expecting headline inflation of around 6 per cent in 2022, ­easing back to 3 per cent by midway through 2024.

But if these estimates are ­revised radically upward, pressure is likely to build on the RBA to increase rates at a higher and faster rate, as has ­already happened in the US where inflation is running at more than 8 per cent.

Mr Chalmers said the rises were led by “spikes in energy prices and in building costs”, with the consequence that Australians’ spending power was falling further and further behind.

“This is the defining challenge in the economy,” he said. “Not easily fixed, not easily addressed. But a challenge, which is even more substantial than my predecessors ’fessed up to.

“I’m not going to be the kind of treasurer that for political purposes, pretends that everything is fine in the economy, if ordinary working Australians are falling further and further behind.”

He said Australia had low unemployment and strong demand, but a substantial problem with inflation and real wages, and the state of the budget.

The government has already signalled it will bring down a budget which the ­Treasurer said had three main objectives: “Implement our commitments and our economic plan to try to get the economy growing faster, without adding to these inflationary pressures; secondly, a cost of living package … focused on the commitments … to make childcare cheaper and medicines cheaper, and to get cheaper ­energy into the system and to get real wages moving again. Thirdly, to start to deal with that legacy of rorts and waste.”

Mr Chalmers also signalled the government wanted to improve the value for money from the NDIS, one of the fastest growing areas of spending.