Chalmers Warns Middle East Conflict May Lift Inflation Above 5%

Australian Treasurer Jim Chalmers warned on Thursday that escalating conflict in the Middle East could push inflation above 5 percent and shave billions from the nation's economy, as he outlined plans for an ambitious federal budget in May to address tax reform, spending controls, and productivity growth.

In a speech to the Australian Business Economists in Melbourne, Chalmers detailed Treasury modeling of two scenarios tied to the war in Iran. If oil prices remain around US$100 a barrel through the first half of the year, inflation could peak in the high 4 percent range. A more prolonged conflict, with prices reaching US$120 a barrel and taking three years to subside, would likely drive inflation toward 5.5 percent or higher. Economic output, or GDP, could fall 0.2 percent by mid-year in the milder case, recovering soon after, or drop 0.6 percent by 2027 in the extended scenario, with effects lingering into 2029. Chalmers attributed about half of the GDP impact to higher oil costs, with the rest stemming from broader disruptions like reduced consumer spending and delayed business investment.

The warnings come amid rising petrol prices and fuel shortages in regional areas,...