Economists say the Budget is inflationary

The consensus from economists is that the budget will add to inflationary pressures. Here’s a summary of their post-Budget commentary:

“I had thought that the Reserve Bank was done and dusted but this has notably raised the chance that they will do another swing of the baseball bat.

“It would be marvellous if it wasn’t inflationary but it will be harder to achieve that”

Chris Richardson, Jim Chalmers splashes $21bn in risky populist pitch, The Australian 9 May 2023

“Unambiguously expansionary.”

Betashares Chief Economist David Bassese, Australian Financial Review, 10 May 2023.

“Unfortunately, proposed fiscal settings look a little confused… Policymakers cannot claim that fiscal measures are both stimulatory for households and non-inflationary.”

PinPoint Macro Analytics Chief Economist Michael Blythe, Australian Financial Review, 10 May 2023. 

 “At a time when the RBA is lifting rates to contain elevated inflation and accelerating labour costs, we assess the budget’s near-term boost to household incomes to have an incrementally hawkish read-through for monetary policy.”

“... the risks are skewed to more tightening being required and potentially as soon as next month’s board meeting.”

Andrew Boak, Goldman Sachs Chief Economists, Australian Financial Review, 10 May 2023.

“The government plans to spend more than it saved in the short term … In normal times the economy would easily absorb this stimulus. But inflation is already running at an annual rate of 7 per cent, and more than one in every four dollars spent in the Australian economy is by a state, territory, local or federal government.”

Cherelle Murphy, EY Oceania Chief Economist, Australian Financial Review, 10 May 2023.  

“Mr Tharenou said the ‘stimulatory’ budget would free up additional cash flow for low-income households that are more likely to spend money and increase demand.”

USB Chief Economist George Tharenou, Australian Financial Review, 10 May 2023.

“Further, we expect inflation to be stubbornly higher than the Reserve Bank of Australia's target until fiscal 2026. The government has shown spending restraint in the face of growing demands; however, handouts in today's budget may add to inflationary pressures.”

S&P Global Ratings, Press Release, Bulletin: Inflation, Jobs, Spending, Restraint Narrow Australia’s Deficit, 9 May 2023.