Treasury Expects Inflation To Return To Target A Year Before RBA

The federal budget is announced on Tuesday at around 1930 AEST. The updated Treasury economic and fiscal forecasts will be a particular focus for market participants. There are reports today that it will forecast inflation returning to target by December 2024, a full year ahead of the RBA’s updated and upwardly revised May projections. Lower growth, especially consumption, expectations are also likely.

• Treasurer Chalmers has said that the difference between Treasury’s inflation forecasts and the RBA’s is “timing” rather than “opinion” as the latter does not include the measures in the new budget. The RBA is projecting headline at 3.8% at the end of this financial and calendar years before falling to 2.8% at the end of 2025. It has trimmed mean at 3.8% in Q2 2024, 3.4% end-2024 and 2.8% end-2025.
• The Australian is suggesting that lags from previous monetary tightening and continued rollover of mortgages from low to higher rates are the reason for the difference. It is likely that the RBA has already taken this into account but may have made different assumptions.
• Treasury estimated end FY24 CPI at 3.75% in December’s MYEFO and end FY25 at 2.75%, which was already 0.5pp below the RBA at the time. According to The Australian, inflation will be revised down to 3.5% in Q2 2024 and Q2 2025 remains at 2.75%. Growth will be brought down 0.25pp to 2% in FY25 (RBA 2.1%) and 2.25% in FY26 (RBA 2.4%).
• Tuesday will provide the details on what may have driven Treasury’s expected downward revisions, including extensions of rent and energy bill relief.