Fiscal loosening adds fuel to inflation fire

The huge expansion in public spending since the start of the pandemic is a key reason why we expect Australia’s GDP to have surpassed its pre-virus trend at the start of this year despite the drag on labour supply from the slump in net migration. While the Treasurer has argued that the government has started with budget repair, it provided fresh support measures in this week’s Budget with an eye on next month’s federal election. With private consumption powering ahead throughout the Omicron wave, the onus to rein in soaring price pressures rests firmly on the Reserve Bank of Australia.