Rachel Mealey: Well, it's perhaps the biggest bet Treasurer Jim Chalmers is making in tomorrow night's budget and it's all about inflation. Forecasts in the budget papers show inflation slowing faster than expected and back within the Reserve Bank's 2-3% target band by the end of the year. But the RBA isn't so optimistic. Here's the ABC's Senior Business Correspondent, Peter Ryan.
Peter Ryan: Updated Treasury forecasts contained in tomorrow's budget see inflation getting down to 2.75% by the end of the year rather than next year. It's currently 3.6% so that would be a rapid fall. The optimism that inflation will tumble faster than expected is in sharp contrast to what the Reserve Bank sees. Just last week, the RBA sent out an inflation alert predicting higher inflation by the end of the year at 3.8%, a world away from that Treasury bet of 2.75%. RBA Governor Michele Bullock warned that if inflation doesn't come down, the 14th interest rate hike since May 2022 remains on the table.
Michele Bullock: Getting inflation back to target will take time and I think the path will likely continue to be bumpy and we should all be prepared for that. I hope that we don't have to raise interest rates again. Having said that, things are uncertain and if we have to move we will.
Peter Ryan: So who's right? Finance Minister Katy Gallagher concedes taming inflation won't be easy. This morning she was spruiking tight economic management.
Katy Gallagher: You know we've got a number of responsibilities with this budget and you will see that it is a very responsible budget so it does manage to deal with the inflation challenge and we've seen inflation had a six in front of it when we came to government, it's now got a three in front of it but there's more work to do.
Peter Ryan: Shadow Finance Minister Jane Hulme is sceptical and she warns the devil will be in the detail.
Jame Hulme: Well it's certainly very different from the RBA's forecast that was made only six days ago and I suppose it's really up to the Treasurer now to tell us exactly how the government is going to bring inflation back down sooner.
Peter Ryan: Economist Stephen Koukoulas also wants to know just how Jim Chalmers will pull a low inflation rabbit out of tomorrow night's budget hat that could deliver interest rate cuts before next year's Federal Election.
Stephen Koukoulas: Look it is a big bet that inflation will be falling that quickly but clearly the Treasury has a little bit more information that it knows what's in the budget obviously which I think will be the sort of discovery we make tomorrow night when we see the details of the budget and just how Treasury's got that inflation forecast considerably lower than the RBA's.
Peter Ryan: And will that timing be enough to guarantee a rate cut in time for an election to be called?
Stephen Koukoulas: Look if Treasury is more right than the RBA and if it coincides with a weak economy and if the election's in May 2025 which I'm assuming the government wants to run to we could be getting a couple of interest rate cuts before polling day.
Peter Ryan: Once the budget is out of the way, attention swings to wages data out on Wednesday and then an update on employment on Thursday. Last month's jobless rate is expected to tick up slightly to 3.9 per cent, still historically low with 20,000 new jobs created. So concerns remain about a tight labour market. This is all about the tricky task of getting inflation down and the jobless rate up to around 4.5 per cent, what's known as the narrow path, taming inflation while maintaining jobs gains. Michele Bullock said last week the RBA board is trying to do that without triggering a recession.
Rachel Mealey: Peter Ryan and you can follow all our Budget Night coverage live or later on the ABC Listen app.
