The budget papers show that the Treasury’s base case is that the inflation rate will ease to 2.5% in 2027, after peaking at a forecast 5% in mid-2026. This is based on expectations that the price of crude oil will fall.
However, the Treasury’s worst-case scenario modelling suggests that inflation will rise above 7% if a protracted war in the Middle East pushes crude oil prices above $US200 a barrel in the September quarter.
In turn, such an outcome would reduce real GDP growth by 0.5% over the next two financial years and result in an official unemployment rate of 5% in 2027-28.
