IMF Warns Australia Set For One Of Highest Inflation Rates In Developed World
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The IMF predicted that Australia’s GDP growth would remain flat this year at 2025’s level of 2.0 percent and would fall in 2027 to 1.7 percent.
Those figures are lower than previously projected, down from 2.1 percent for this year and 2.2 percent for next.
While that will be a consideration as Treasurer Jim Chalmers drafts his next budget for delivery on May 12, even more alarming is the forecast for inflation, with the consumer price index at 4.0 percent this year and 3.3 percent in 2027.
Those inflation figures exceed those of most advanced economies, including the United States (3.2 percent in 2026 and 2.1 in 2027), the UK (3.2 and 2.4), Germany (2.7 and 2.3), New Zealand (3.1 and 2.3), Japan (2.2 and 2.3),
Australia’s unemployment is also expected to be stubborn, at 4.2 and 4.3 percent respectively.
“What should we avoid?” IMF chief economist Pierre-Olivier Gourinchas asked.
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Price caps, subsidies, and similar interventions are popular, but they distort prices. They’re often poorly designed, hard to unwind, and extremely costly,” he said.
Graham Young, executive director of the Australian Institute for Progress, said the government was giving “a masterclass in how to repeat the 1970s and 80s and turn a price increase into an inflation increase.
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On its own, the oil price will redirect spending largely from non-essentials to fuel, but if the government tries to soften the hit, and they do that without corresponding savings somewhere else, then it will turn into inflation,” he explained.
He cautioned that further pressure on inflation would occur if the Australian Council of Trade Unions is successful in its bid to increase the minimum wage by 5 percent without a corresponding rise in productivity.
“Wage increases without productivity increases are almost always inflationary first and deflationary second as they put businesses out of business, increase unemployment, and contract the economy,” Young said.
Treasurer Jim Chalmers has left for Washington D.C., to discuss the economic crisis with international counterparts, including the UK’s Chancellor of the Exchequer Rachel Reeves, and Chinese Finance Minister Lan Foan at the IMF-World Bank Spring Meetings.
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