SYDNEY, AAP – Australia’s inflation rate is expected to tick higher in the June quarter but the increase will be capped by a cut in the fuel excise announced this week.

“Our central forecast is for inflation to pick up to four-and-a-quarter per cent through the year in the March quarter and June quarters,” Treasury Secretary Steven Kennedy told a post-budget Senate estimates hearing on Friday.

Of this, about one percentage point would be due to the direct effect of higher oil prices on fuel.

Broader global energy cost and supply-chain pressures will put pressure on prices for other consumer goods in the near term.

Treasury is forecasting for oil prices to remain elevated but reduce from the recent peak of above $US125 per barrel.


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A more prolonged period of higher oil prices could add a further quarter percentage point to annual inflation, Dr Kennedy said.

Without the reduced excise, inflation would have been forecast to rise to 4.5 per cent in the June quarter, he said.

Treasurer Josh Frydenberg on Tuesday halved the 44.2 cents a litre fuel excise for six months in an effort to cut cost-of-living pressures.

Economists expect inflation to accelerate to at least five per cent compared with an already high rate of 3.5 per cent.

Dr Kennedy played down the risk of that happening, saying conditions in Australia were a little different to those in the United States and Europe.

“While we have faced higher petrol prices, we have not faced domestically higher gas prices, and other energy prices, to the same extent,” he said.

“The second factor is in the US they have got broader wage pressures coming through. They have not recovered their participation rates so they are facing a tighter labour market.”