Middle East ceasefire would help my CPI war, says Jim Chalmers
Jim Chalmers will make an economic case for a ceasefire in the Middle East and open a new front in Labor’s push to end conflict in the region, warning the ‘global middle class’ will be hurt.
Jim Chalmers will make an economic case for a ceasefire in the Middle East and open a new front in Labor’s humanitarian push to end conflict in the region, warning that an escalation in fighting “risks persistent inflation for the global middle class”.
The Treasurer, who has largely steered clear of commentary around Israeli military action and ceasefires in Gaza and Lebanon, will directly link the threat of higher oil prices and prolonged inflationary pressures to ongoing hostilities in the Middle East.
In remarks to finance ministers and economic leaders gathered in Washington DC for annual International Monetary Fund, World Bank and G20 meetings, Dr Chalmers will say the “global economy is uncertain and the global outlook is unsettling”.
“While our focus is on the humanitarian cost of this crisis, we must recognise that there is an economic cost too. An escalation in the Middle East risks persistent inflation for the global middle class,” Dr Chalmers will say.
“Within a week of tensions re-escalating in October, oil prices spiked 10 per cent. And over the past year, demand for safe haven assets has seen the price of gold rise by around 48 per cent.
“A broader war could put upward pressure on oil prices, prolong the fight against inflation and threaten the soft landing that we all seek. In seeking ceasefire and de-escalation we are focused on the human catastrophe but there are economic consequences too. We know that more bloodshed is one of the biggest threats to the global economy. None of us will escape the economic consequences of an escalating war in the Middle East.”
After the IMF this week revised up its 2025 inflation forecast for Australia from 2.8 per cent in April to 3.6 per cent, Dr Chalmers will say: “Conflict is the biggest risk to the progress we’ve made since the depths of Covid.”
Dr Chalmers will tell finance ministers that under the Albanese government, inflation has halved. “We’ve recorded faster employment growth than all major advanced economies; real wages are growing again; and our two straight surpluses have helped repair the budget,” he will say.
Inflation in Australia has proved to be more persistent than in the US, the Euro area, Britain, Canada and New Zealand. When Labor won the election, inflation in Australia was at 6.1 per cent compared with 9.1 per cent in Britain, 8.6 per cent in the US, 8.1 per in the Euro area, 7.7 per cent in Canada and 7.3 per cent in New Zealand. But while inflation didn’t peak as high in Australia due to the Reserve Bank opting against tighter monetary policy to shield jobs gains, the RBA’s approach meant price pressures have remained sticky. As of August, headline inflation in Australia was 2.7 per cent and underlying inflation was 3.4 per cent. This is compared with headline inflation of 2.4 per cent in the US, 2.2 per cent in New Zealand, 1.7 per cent in Britain and the Euro area, and 1.6 per cent in Canada.
Ahead of the one-year anniversary of Israel launching ground operations in Gaza, Dr Chalmers will say “the soft landing we seek is assumed for many of us but assured for none of us”.
“While these conflicts in Europe and the Middle East had very different causes, they threaten very similar consequences,” he will say.
“They compound the pressures we see from a softer Chinese economy. Economies have slowed due to higher interest rates, persistent inflation, conflict and fragmentation. Around three-quarters of OECD countries have experienced a negative quarter of growth in the last year.
“There’s still a great deal of volatility and vulnerability in the global economy.”
Dr Chalmers will meet US Federal Reserve chair Jerome Powell, US Treasury Secretary Janet Yellen, and Japanese, South Korean and Canadian counterparts on Friday and Saturday.
With the RBA board expected to keep Australia’s cash rate at 4.35 per cent at its November 5 meeting, the Bank of Canada on Thursday (AEDT) cut its cash rate by half a percentage point to 3.75 per cent and flagged further rate cuts. The US Federal Reserve, which delivered a half-percentage-point cut in September, is expected to slash interest rates further, with four quarter-point cuts projected to push rates to 4 per cent by mid-2025. Markets expect the Bank of England and European Central Bank to cut rates by a full percentage point to 4 per cent and 2 per cent over the same period.
Facing an economy that is barely growing, the Reserve Bank of New Zealand is expected to make a second consecutive half-percentage-point cut next month. Rates across the Tasman are expected to fall below 3.5 per cent by mid-2025.
Former RBA board member Warwick McKibbin said that in addition to Middle East conflict and oil price impacts, the return of Donald Trump threatened to re-intensify global inflationary pressures. Amid concerns inside the Albanese government about the impacts of a Trump administration on Labor policies, Professor McKibbin said a US-China trade war and new tariffs would be “very bad” for Australia.
“The inflationary impulse in the US is likely to be quite significant and that’s going to come through to Australia. Then you throw into that the war in the Middle East and energy prices,” Professor McKibbin. “There’s a lot of potential (for) low growth and positive inflationary shocks coming along. The probability is that inflation overseas will be higher next year, than this year.”
In response to UN concerns about displacement in northern Gaza, Foreign Minister Penny Wong said on Thursday: “Our message is as it has been for months now; we support a ceasefire in Gaza. “We have for 10 months now, and we support the US Secretary of State (Antony) Blinken in his efforts to broker that ceasefire, which the United States, Australia and others has been calling for, for some time.”
Asked this week about Mr Blinken’s visit to the region to progress ceasefire talks, opposition foreign affairs spokesman Simon Birmingham said Hamas must first release hostages and “surrender their remaining arms and terrorist capabilities”.
“That would achieve a ceasefire in Gaza that is so desperately needed by the Palestinian people there and could bring that conflict to an end,” Senator Birmingham said. “Equally, I urge the Lebanese authorities to engage comprehensively with Israel, with the United States, to try to achieve something that does ensure Lebanese authorities are in charge of their country and that they can work with Israel to remove that Hezbollah threat.”
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