Treasurer Jim Chalmers has warned Australians to prepare for tough times ahead as the inflation rate continues to spike and a recession looms in the wings.

Treasury has forecast inflation to peak at 7.75 per cent by year’s end, well above earlier predictions, with real wage growth not expected until the end of 2023.

Brace for inflation

The Treasurer warned inflation is not expected to settle until 2024 and that many Australians will be doing it tough.

“There’s no use tiptoeing the pressure that people are under,” Chalmers said. “You know what we are up against; you see it every day, at the supermarket, in your pay packet, when the electricity bill arrives.”

Chalmers acknowledged Australian households, particularly those with mortgages, would feel the pinch but said the government hoped to address inflation issues with a range of affordability measures. He admitted rate rises were hurting many Australian households.

“Every extra dollar Australians have to find to service the mortgage is a dollar that can’t help meet the high costs of other essentials,” Chalmers said.

Tackling supply chain issues

However, the Treasurer said the government should be looking to address supply problems rather than rate rises if it hopes to address inflation and the affordability issues facing the nation.

“Governments shouldn’t make it harder for the RBA on the demand side but, more than that, we should be working to address problems on the supply side.

“Some of the conditions determining this inflation problem are outside of Australia’s control and largely unavoidable,” said the Treasurer.

“As much as we can provide support, we can’t control the war in Ukraine, or China’s COVID policies. Floods and new COVID variants bring the supply chain disruptions and worker absences we are experiencing. But there are things we can control,” said Chalmers.

The treasurer said left untreated, inflation which is too high for too long  would undermine living standards and wreck the economy.

“But the medicine is also tough to take, and millions of Australians with a mortgage are feeling that right now. [However] We have it within us to stare down these threats, to steer our way through this difficult period, and seize the opportunities of this new age,” Chalmers said

Labor’s plan to deliver affordability

Chalmers said the government’s plan to fight inflation and rising costs of living was threefold.

“First, help Australians with the costs of living – by cutting child care costs for approximately 1.26 million families, and reducing barriers for parents – overwhelmingly women – to work additional hours; and by cutting the cost of medicines on the PBS by up to $12.50 a script.

“Second, grow wages over time – by successfully arguing for a decent pay rise for the lowest paid; by supporting decent wages in the care economy; by training people for higher-wage opportunities; by investing in industries which will deliver more secure, well-paid jobs.

“Third, unclog and untangle our supply chains and deal with the supply side of the inflation challenge – by investing in cleaner, cheaper more reliable energy; by addressing skills and labour shortages; and with a National Reconstruction Fund to make us more self-reliant.”

Chalmers said Australians were paying a “hefty price” for a wasted decade of Coalition government spending. But Labor was ready to face the challenges ahead.

“This once-in-a-generation challenge also represents a once-in-a-generation opportunity for our country. The opportunity to build a better future,” Chalmers concluded.

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