The cost of living to hit higher than expected peak by Christmas and continue through to mid-2024

In a highly anticipated economic statement update, Federal Treasurer Jim Chalmers said wages were expected to grow at the “fastest pace” in a decade — but the “harsh truth” was households would not feel the benefits for years.

The cost of living crunch impacting Australian households will hit a higher than expected peak at Christmastime, with the pain not expected to ease fully until mid-2024 Treasurer Jim Chalmers has revealed.

Queensland’s Dr Chalmers, in a highly anticipated economic statement update, also confirmed wages were expected to grow at the “fastest pace” in a decade — but the “harsh truth” was households would not feel the benefits until 2023/24.

Treasurer Jim Chalmers delivering his economic update to parliament in the House of Representatives in Parliament House in Canberra Thursday. Picture: NCA NewsWire/Gary Ramage

The Reserve Bank of Australia had forecast inflation to peak at seven per cent by the end of 2022, with the Australian Bureau of Statistics on Wednesday saying price growth had already hit a record high of 6.1 per cent.

But Treasury forecasts show inflation will peak a 7.75 per cent in December, before easing to 5.5 per cent in mid-2023 and will be back inside the RBA’s “target range” by mid-2024 when it is expected to hit 2.75 per cent.

The worst inflation figures in two decades, combined with stalling global growth and climbing interest rates is expected to wipe $30bn from the economy over the next three years.

The economy is only expected to grow by three per cent of gross domestic product (GDP) this financial year, and just two per cent in 2023-24 according to Dr Chalmers’ ministerial statement.

This is a drop of 0.5 per cent each year from previous forecasts, with the gloomy Treasury figures commissioned by Dr Chalmers also showing last year’s growth is expected to be lower than previously hoped.

Dr Chalmers also said additional Covid-19 related expenditure, likely to include the ongoing pandemic leave payments, will cost the budget an extra $1.6bn a year.

“We expect that government payments will be around $30 billion higher over the forward estimates than was forecast pre-election, because of inflation and wage expectations and how they flow through,” he said.

Dr Chalmers also said additional Covid-19 expenditure will cost the budget an extra $1.6bn a year. Picture: NCA NewsWire / Gary Ramage

In a key statement designed to reframe the nation’s economic narrative, Dr Chalmers said there was no shirking from the pain Australians would be feeling from ongoing interest rate rises.

But digging into Australian “resilience”, Dr Chalmers said the nation could “stare down the threats” and “steer our way through this difficult period, and seize the opportunities of this new age”.

“With an economy and a budget as resilient as the Australian people themselves. And with optimism and confidence that our best days lie beyond,” he said.

“There’s no point pretending these rate rises don’t hurt – they do and they will.

“Every extra dollar Australians have to find to service the mortgage is a dollar that can’t help meet the high costs of other essentials.

“Once again, Australia is outperforming much of the world, but that doesn’t make it easier to pay the bills at home,” Dr Chalmers said.

Originally published as The cost of living to hit higher than expected peak by Christmas and continue through to mid-2024