Jim Chalmers tells world leaders escalation in Middle East a big threat to economy

Treasurer Jim Chalmers has warned world leaders an escalation of conflict in the Middle East could derail the economic recovery and make inflation worse.

Dr Chalmers will use a speech in Washington DC to raise concerns about rising costs from the worsening war, saying it “risks persistent inflation for the global middle class”.

It follows damning reports from the International Monetary Fund, predicting Australia’s inflation will be among the highest in the developed world in 2025 and revealing government budgets have been propped up by rocketing tax revenue.

“A broader war could put upward pressure on oil prices, prolong the fight against inflation and threaten the soft landing that we all seek,” Dr Chalmers will say at the meeting of officials from the International Monetary Fund, World Bank and ministers from G20 countries.

He is also expected to highlight a 10 per cent spike in oil prices after tensions reignited in October.

“In seeking ceasefire and de-escalation we are focused on the human catastrophe but there are economic consequences too,” Dr Chalmers will say.

“We know that more bloodshed is one of the biggest threats to the global economy.

“None of us will escape the economic consequences of an escalating war in the Middle East.”

The Nightly reported local consumers could expect to pay about 5 cents per litre more at the bowser after the crucial commodity’s price surged amid tensions between Israel and Iran.

Dr Chalmers also spruiked the Government’s economic strategy — talking up two budget surpluses, record high jobs market participation and inflation halving.

But the inflation fight still needs to be finished and budgets must be repaired without risking growth, Dr Chalmers said.

Also on Thursday, analysis by Westpac indicated Australian households were largely saving extra cash from the stage 3 tax cuts.

Those tax cuts — first legislated by the Turnbull Government and then adjusted by both the Morrison and Albanese administrations — boosted disposable income by about $6.4 billion in the three months to September, the bank reckons.

As little as 16 per cent may have been spent, however, based on numbers from the big four bank’s consumer panel.

“The substantial size of the income boost from Stage 3 tax cuts was always well appreciated,” Westpac economist Jameson Coombs said.

“What’s been less clear is the impact this would have on spending.”

Cash was likely being shovelled into savings and mortgage offset accounts, the bank believes.

“This will be welcomed by the RBA,” Mr Coombs said.

“The Board has been alert to the upside risks to consumption from Stage 3 tax cuts and the implications a material lift in consumption would have for returning inflation to the target band.”