Is the government really on an ‘out-of-control’ spending splurge? It’s complicated

AI desk brief

Australian inflation accelerated to 4.3% year on year in September, with underlying inflation at 3.7%, reinforcing expectations for a fourth RBA rate hike and keeping policy restrictive. The piece argues that higher government spending and budget deficits are adding demand to the economy, complicating the inflation fight and keeping pressure on rates.

It cites federal spending up 30% from 2021-22 to 2025-26, with deficits of about A$10bn in 2024-25, A$22.3bn in 2025-26 and an expected A$31.5bn shortfall this financial year. Fuel prices were the main near-term driver of the inflation spike, with transport adding 1 percentage point to headline CPI.