The Assistant Treasurer reported additional stress on household budgets following a spike in US interest rates.
The US Federal Reserve announced a 0.75 percent increase in official rates to a target range of 3 to 3.25 percent, the highest levels in nearly 15 years.
It stems from higher-than-expected inflation figures, which sent shockwaves through stock markets,
Deputy Treasurer Stephen Jones said Australia’s economy was not immune to international pressures, particularly from the United States.
Supply chain constraints from continued shutdowns in China and the war in Ukraine are also fueling inflation, driving up energy and commodity prices, putting pressure on government budgets. Australian households.
“There’s no question that everything that happens in the United States has an impact on us, it’s the biggest economy in the world,” Jones told ABC Radio.
“When they start moving their rates, it impacts ours, it impacts our currency.”
While Australians would face higher interest rates, the alternative path of runaway inflation would be worse for households and businesses, he said.
“Nothing will hurt households and businesses more than runaway inflation. It’s painful, we know it’s painful, but it’s necessary.”
Ray Atrill of National Australia Bank noted that the US Fed forecast GDP growth of 0.2% for 2022 and 1.2% for 2023.
“So still a soft landing as such with no formal recession,” he said.
But inflation in the United States still had to wait four years to return to the Fed’s medium-term target of 2%, Mr Atrill said.
There are calls for the government to provide cost-of-living relief in its upcoming October budget after refusing to extend a temporary fuel excise duty cut.
Treasurer Jim Chalmers has repeatedly said the government will maintain fiscal prudence, calling the upcoming budget “bread and butter”.
Mr Jones said a temporary increase in the budget net result, some $50 billion due to high commodity prices and lower-than-expected spending, would not remove the need for austerity.
“If you get a few extra hours, you don’t get out right away and double your mortgage,” he said.
“We expect there to be difficulties down the line. We know it happens to us.
“Now more than ever, it’s important that we address the issues and have a responsible budget that doesn’t add $1 trillion to the debt.”
In positive economic news, the National Retail Association reported that sector profitability rebounded to pre-COVID levels.
Retail profits rose 4.9% year-on-year for the June quarter.
The association’s acting chief executive, Lindsay Carroll, said it showed the sector was heading in the right direction after a difficult few years.
“However, we must keep in mind that the increase in profitability is due in part to rising costs of goods and services, rather than sales volumes,” she said.
“With inflation expected to continue to rise, retailers can expect some challenges to persist.”
The report measures that sales rose 0.3%, wages 0.4% and inventories 1.3% in the June quarter.