‘Will get harder’: Jim Chalmers makes grim warning among ‘perfect storm’ of conditions

Australians are being told to brace for an expensive winter after being hit with yet another price hike.

Australians have been told to brace for an “expensive winter” amid concerns the cost of living is set to skyrocket in coming months.

The perfect storm of gas shortages and rising energy prices compounded on Tuesday when the Reserve Bank blindsided most economists by lifting the cash rate 50 basis points to 0.85 per cent – the largest hike since 2000.

Treasurer Jim Chalmers said the average new mortgage holder is expected to front up about $157 a month more to service their loan.

Treasurer Jim Chalmers has warned Australians to brace for an ‘expensive winter’ among a perfect storm of conditions. Picture: NCA NewsWire / Andrew Taylor

He warned it “will get harder before it gets easier” but lamented the government’s ability to assist Australians doing it tough was “constrained” by the budget’s $1 trillion debt.

“We need to be honest and upfront with the Australian people about the nature, the severity, the magnitude of this inflation challenge that we confront,” Dr Chalmers told reporters in Brisbane.

“It is the universal expectation across economists and government and the Reserve Bank that this inflation challenge will get harder before it gets easier.”

Additionally, Dr Chalmers said the rate rise would impact on the government’s ability to pay down the debt, but insisted he would have more to say on the issue when parliament returned in July.

In a statement on Tuesday, RBA Governor Philip Lowe pointed to more rate hikes as inflation continues to blow out.

The strain on power prices is in part caused by the war in Ukraine as well as Australia’s lack of renewable energy investment and outages at 25 per cent of Australia’s coal-fired power stations. Picture: NCA NewsWire / Brenton Edwards

But it’s not all bad news. Australia’s economy has grown and the household saving rate continues to remain higher than it was before the pandemic.

However, for many who are already doing it tough, the RBA Governor’s tip that households have “built up a large financial buffer” may be cold comfort.

“When you have an economy which is characterised in part by skyrocketing costs of living, including spiking prices for energy and groceries, you can see that today’s decision will make it that much harder for a number of Australians,” he said.

A rise in interest rates will put added pressure on homeowners. Picture: NCA NewsWire / Kelly Barnes

It comes as a coalition of peak industry bodies has called on federal and state energy ministers to provide financial support to those hit hard by rising energy costs.

In a statement ahead of the meeting, the group, which includes the Australian Council of Social Services, Clean Energy Council and National Farmers’ Federation, said current price hikes “threaten intense and lasting pain for households and businesses.”

Shadow Treasurer Angus Taylor called on the government to scale back its “unnecessary” off budget spending.