Inflation has jumped to 4% in the year to August, from 3.5%, as Jim Chalmers was again forced to defend Labor’s economic management amid fears the Reserve Bank will need to hike interest rates again before Christmas.
The increasingly embattled treasurer was accused of “gaslighting” Australians by insisting that government spending was not responsible for high inflation, blaming instead higher fuel costs associated with the ongoing US-Israel war on Iran.
“We can see in today’s inflation figures that the overwhelming reason why annual headline inflation has come up in August compared to July is because of the impact of higher global oil prices flowing through to oil prices in Australia,” Chalmers told reporters in Sydney.
“That’s not an opinion. It’s a fact.”
Fuel prices surged by 15% last month, the Australian Bureau of Statistics said, after a worsening Middle East conflict triggered a rebound in global oil prices and the government ended its cut to the fuel excise.
Rising transport costs were the prime contributor to price increases in the month, the ABS confirmed.
But a 5.4% increase in home building costs over the 12 months to August was one of the prime drivers of high annual inflation “as builders passed on higher costs for materials and labour”, the ABS said.
Electricity bills were also higher than this time last year when households were still receiving government rebates.
The rise in headline inflation was slightly less than economists had anticipated, while underlying inflation – which removes the most volatile prices swing – was steady at 3.6% in the year to August.
Both were still well above the RBA’s 2.5% target. Cherelle Murphy, EY’s chief economist, said “another rate hike looks likely by the end of the year”.
A day after the RBA lifted its cash rate to 4.6% – the fourth increase in 2026 – Murphy said “they [the RBA] have an ongoing fight on their hands”.
“This is not the end of it.”
Chalmers on Wednesday afternoon denied that he was at odds with Michele Bullock, the central bank governor, who at her press conference the previous day said “inflation is too high and has been driven by domestic capacity pressures”.
But Bullock also pointed to the worsening Middle East conflict and the sudden boom in AI-related spending on datacentres.
“These developments suggest that inflationary pressures will persist for longer than previously expected,” she said.
Murphy said it was a fact that spending by governments, at the commonwealth and state levels, was high, and that this was adding to demand in the economy.
She said this meant the government should be extremely careful with any new spending – including additional cost of living relief – for fear of making the RBA’s job harder.
But she said it was impossible to quantify exactly to what extent government spending was responsible for persistently high inflation in 2026.
“Do I think this is the biggest part of the inflation problem right now? No, the biggest part of the problem is that we have these global supply shocks.
“What we are witnessing is the accumulation of a number of events happening together, and none of them are good for inflation.”
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