Inflation worries in Australia add to pressure on PM Morrison as election looms

SYDNEY - Australia is experiencing its first serious bout of inflation in years, leading to growing calls for the federal government and the central bank to intervene as prices for coffee, instant noodles and baked beans, among other things, mount.

Soaring oil prices due to the war in Ukraine and disruptions to global supply chains have led to price hikes in stores and supermarkets across the country. The flooding across eastern Australia in recent weeks has also hampered food supplies and transport flows, leading to further price pressures.

Australia's official annual inflation rate is currently 3.5 per cent, which marks the highest level since 2009 during the aftermath of the global financial crisis. But the head of Australia's central bank, Dr Philip Lowe, said on Tuesday (March 22) that the rate will probably rise to 4.5 per cent due to high oil prices. Some analysts believe that it could soon exceed 6 per cent.

Foodmakers have warned of further price hikes due to rising costs of fuel, wheat, and packaging and manufacturing materials. A survey of 45 supermarket suppliers earlier this year by investment group Jarden found that food prices should rise by 6.8 per cent this year.

Fruit and vegetable producer SPC has reportedly advised supermarkets that it will increase the price of about 100 household staples including baked beans and spaghetti by up to 20 per cent. The price of SPC canned tomatoes will lift for the first time in 10 years.

SPC's chief executive, Mr Robert Giles, said price pressures were affecting a vast range of items and represented "the largest wave of inflation I have seen".

"We've just got to the stage where they are so significant, we have had to pass them on to our consumers," he told ABC News.

"I've been in the industry for over 30 years, and this is as large as I've seen."

A federal election is due to be held by May and opinion surveys show that cost of living concerns are currently the biggest worry among Australians. A report released last week by JWS Research found that 65 per cent of people said cost of living was one of their top three priority issues for the federal government, compared with 61 per cent who named healthcare and 42 per cent who named the economy.

"Calls for action on living costs have been building over the past year, after taking a back seat to health during the worst of the pandemic," the report said.

Prime Minister Scott Morrison confirmed on Wednesday that he plans to use next Tuesday's federal budget to assist those affected by spiralling prices. He is believed to be considering moves to reduce petrol taxes and to deliver cash payments or tax cuts for those on lower incomes.

"We've been carefully pulling together a package that we know can address the rising cost of living, but do so responsibly and in a balanced way," he told reporters.

Economist Angela Jackson from Impact Economics and Policy said Canberra should boost support for lower-income households - potentially through higher unemployment benefits - but should avoid large-scale spending measures that could add to inflation.

"Just spraying cash runs the risk of adding fuel to the inflationary fire," she told The New Daily website.

The Greens party, which believes it could hold the balance of power if the election result is tight, has proposed a guaranteed payment of A$88 (S$89) a day for all recipients of support such as pensions and unemployment benefits.

But the surging inflation has also put pressure on the central bank to increase interest rates from their current historic lows. The rate has steadily declined from 4.75 per cent in 2011 to its current rate of 0.1 per cent.

The bank aims to keep inflation between 2 per cent and 3 per cent and is tipped to start increasing the rate from June. But Dr Lowe indicated this week that he believes the current inflation spike will be temporary because the supply disruptions will soon end.

"It is quite possible that these big price increases occurred, that they are not repeated, the prices normalise and, after a spike, inflation comes down again," he said.