"Controlling inflation by lowering the growth in government spending needs to again be a top priority in the upcoming federal budget," said Innes Willox, Chief Executive of Australian Industry Group.
"The Reserve Bank of Australia's decision to raise the cash rate to 3.85% is unfortunate but unavoidable. The inflationary outbreak of late 2025 is clearly broad-based and has given the RBA little choice but to act.
"Of equal concern are the worrying forecasts issued today by the RBA. Inflation is expected to keep rising until mid-2026, economic growth is forecast to slowly slump back towards 1.6% p.a., while real wages face another year of decline due to high inflation.
"Given current business and broader economic conditions, further rate rises unfortunately can't be ruled out.
"These sobering forecasts point to the pernicious effect of high inflation on Australian households, business and the economy. Now is the time to nip it in the bud.
"The Federal Government can do its part by better controlling the recent high growth in public spending. As the RBA notes, the underlying budget deficit will continue to widen this year. This will add to inflationary pressures at the worst possible time.
"A more disciplined approach to spending is critical to ensure inflation does not become entrenched, and the budget is returned to balance," Mr Willox said.
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