Treasurer Jim Chalmers says earlier predictions that inflation could hit 5 per cent due to the Middle East war now “look pretty conservative”, revealing he has requested fresh Treasury modelling to assess even more severe economic shocks.
The treasurer said the ongoing conflict in Iran and the resulting surge in global oil prices has forced the government to prepare for “more challenging circumstances”. Last week, Treasury released projections showing that if oil climbed to US$120 a barrel and eased only gradually, inflation could rise to 5 per cent. A milder scenario assumed oil would peak at US$100 a barrel for a shorter period.
But with oil briefly touching US$119 a barrel this week, Chalmers said the situation has already outpaced expectations.
“We asked the Treasury to model a couple of scenarios, which look pretty conservative now,” he told reporters in Canberra.
He said the two biggest unknowns were the duration of the conflict and how long the global economy would take to stabilise once the “hot part of the hostilities” ends. The government is now preparing for the possibility of deeper and more prolonged inflationary pressures as energy markets remain volatile.
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