Inflation will peak at 7.75 per cent before subsiding next year, Treasurer Jim Chalmers has said in a major speech laying bare the scale of the challenges confronting Australia's economy.
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Dr Chalmers delivered an update on the state of the economy in parliament on Thursday, which revealed real wages weren't expected to start rising until 2023-24.
The Treasurer acknowledged that international forces such including Russia's invasion of Ukraine were contributing to the economic conditions, but pinned most of the blame for the cost-of-living crisis on the former Coalition government.
"Australians are paying a hefty price for a wasted decade," Dr Chalmers said.
"There is no use tiptoeing around the pressure that people are under.
"Nine years of mess cannot be cleaned up in nine weeks. It will take time."
The statement came a day after figures revealed the annual inflation had soared to 6.1 per cent, on the back of the surging price of fuel, food and housing.
That figure was well above the forecast peak of 4.25 per cent included in pre-election projections.
Dr Chalmers said inflation was now expected to peak at 7.75 per cent in the December quarter, meaning households will continue to feel hip-pocket pain for months to come.
Inflation will "moderate" next year and "normalise" in 2024, he said.
"We haven't reached the peak yet, but we can see it from here," he said.
Dr Chalmers said the forecast for wages growth was being upgraded to 3.75 per cent for the next two years, which, if it eventuated, would be the fastest rate in about a decade.
But that still wouldn't be enough to deliver a real wages boost to working Australians until 2023-24 because of the inflation rate.
"The harsh truth is - households won't feel the benefits of higher wages while inflation eats up wage increases, and then some," he said.
Growth forecasts had been revised down, with GDP for this financial year downgraded from 3.5 per cent to 3 per cent.
Growth is expected to slow to 2 per cent in 2023-34, down from the 2.5 per cent forecast earlier this year.
The jobless rate, which sits at 3.5 per cent, is expected to remain low for the remainder of this year before rising to 4 per cent by the middle of next year.
The Treasurer has for weeks been warning Australians to brace for a "confronting" set of numbers, after inheriting an economy in the grips of a perfect storm of domestic and international pressures which are putting strain on households and the federal budget.
The Reserve Bank is tipped to raise interest rates for the third consecutive month after next week's board meeting, adding further pain for borrowers.
"There's no use pretending these rate rises don't hurt, they do and they will," Dr Chalmers said on Thursday.
Continuing the attack on his predecessors, Dr Chalmers said Labor had inherited a federal budget which was "bursting with waste and rorts, booby-trapped by expiring measures, and burdened by long-term demographic challenges that come with critical and necessary spending".
'We don't need a picture, we need a plan'
Ahead of the statement, opposition treasury spokesman Angus Taylor said the Labor government needed to detail a plan to tackle the cost-of-living crisis, rather than just "paint a picture" of the dire situation.
"We don't need a picture, we need a plan," Mr Taylor told ABC's RN Breakfast.
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Dan Jervis-Bardy
Dan covers federal politics from Parliament House, with a special focus on climate policy and the NDIS. He has previously reported on ACT politics and urban affairs since joining the Canberra Times in 2018.
Dan covers federal politics from Parliament House, with a special focus on climate policy and the NDIS. He has previously reported on ACT politics and urban affairs since joining the Canberra Times in 2018.
