Treasurer Jim Chalmers rejects claims public spending is to blame for inflation rise

Treasurer Jim Chalmers has shot down claims public service spending is to blame for a rise in inflation, rejecting calls for his government to rein in expenditure.

The headline annual inflation rate came in at 3.8 per cent, up from 3.4 per cent, in the 12 months until December, according to data released by the Australian Bureau of Statistics (ABS) on Wednesday morning.

Australians are now bracing for a potential interest rate hike, off the back of the increase in annualised inflation, when the Reserve Bank of Australia (RBA) holds its first meeting of 2026 next week.

“If public spending was the problem, then we wouldn’t have seen three interest rate cuts last year and the big moderation that we saw in inflation,” Mr Chalmers told reporters on Wednesday.

“The story of the economy in the period covered by these inflation figures is a private sector story and not a public spending story.”

He said the RBA had not identified public spending or government policy as a source of persistent price pressures.

“We acknowledge that these price pressures are hanging around longer than we’d like, and that today’s numbers are higher than we’d like, even though they’re much lower than what we inherited,” Mr Chalmers said.

“So I take responsibility for doing my job to address this inflation challenge in our economy, to address the productivity challenge in our economy, and also to do what we can to make our economy more resilient in the face of all of this global economic uncertainty.”

Rather, Mr Chalmers said inflation was raised by a “mix of very temporary factors”, including the scrapping of energy bill rebates.

“In the data today, the timing of these payments combined with the ending of the state rebates at the same time is driving some of the temporary part of this inflation challenge,” he said.

“We expected this because of a combination of those temporary factors and some of those persistent pressures, and so we still expect inflation to moderate over time.”

In an interview with Sky News, Mr Chalmers also emphasised the “responsible approach” the Labor government had taken with the upcoming May budget and the new data’s effect on the economy.

“Do these numbers impact on our thinking for the budget? Of course they do,” he said.

He noted a longstanding productivity challenge and global economic uncertainty would continue to influence the Australian economy.

Shadow treasurer Ted O’Brien said the government could cut “wasteful” spending”.

He criticised Labor for not implementing quantifiable fiscal rules to contain government spending.

“This is the first treasurer since Peter Costello that has not had quantifiable fiscal rules.” he said.

“If you look at the latest International Monetary Fund report, it talks about the problem that we’re going to have in Australia of inflation being higher for longer. It calls for the importance of fiscal responsibility.”

He said if the government was not prepared to put spending rules on the Treasurer, then he “is just going to keep on spending”.

Grim reading for cash-strapped mortgage holders

Meanwhile, the headline quarterly inflation rate for the three months until December was 0.9 per cent, above market expectations.

Economists had said if inflation rose by 0.8 per cent or less it would spare mortgage holders a rate hike in February.

Prior to Wednesday’s figures being released, Betashares chief economist David Bassanese said the quarterly inflation figure would either “make or break” the case for a rate hike next week.