The Australian government is set to lower its inflation forecasts with the unemployment rate expected to be lower for longer in the 2023/24 budget next week, a panorama it hopes will generate much-needed real wage growth.
Treasury Secretary Jim Chalmers now expects an unemployment rate of 3.5% for the June quarter of this year and 4.25% for the same period in 2025, a quarter point lower than the previous budget. October, according to an extract from next Tuesday’s budget seen by Reuters.
The Treasury also expects to create half a million jobs by mid-2026, up from a previous forecast of 300,000 jobs.
The budget forecasts real wage growth of 0.75% in the year to June 2024, up half a percentage point from October, with inflation slightly lower and nominal wages growing faster.
That forecast contrasts with that of the Reserve Bank of Australia (RBA), which on Friday cut its forecast for wage growth for June 2024 to 3.9% from 4.1%, while maintaining its inflation estimate at 3.6%.
Chalmers has repeatedly said his budget plans to limit spending so as not to add to inflationary pressures, while providing targeted aid to deal with cost-of-living pressures.
“While a low national unemployment rate is one of our best defenses against the currently mounting headwinds in the global economy, Australia will not be immune from these challenges,” Mr Chalmers said in the budget extract.
The May budget will focus on targeted relief measures for the cost of living that will not increase inflation.
