Stocks fall as Middle East stalemate boosts oil

Treasurer Jim Chalmers has hinted at an upcoming interest rate increase, citing the effects of the ongoing conflict in the Middle East on inflation. While he does not predict the decision of the independent Reserve Bank, Chalmers acknowledges that there is a widespread expectation of a rate hike across various economies, including Australia, due to rising inflation primarily stemming from oil prices.

Chalmers further expects headline inflation to rise from the current 3.5% to normal levels, which could lead to another round of interest rate hikes this year, marking the fourth increase in 2023. The Commonwealth Bank has expressed readiness for a 25 basis points rate rise, forecasting a potential increase to 4.60% at the upcoming meeting on September 28-29.

Other major banks also predict a similar move. The government announced a final budget outcome for the 2025-26 financial year reflecting a $22.3 billion deficit, slightly better than the initial estimate of $28.3 billion. The revenue growth was attributed to higher-than-anticipated investor and superannuation income, accounting for 24.1% of GDP.

While Chalmers acknowledges the need to curb government spending, he lauds the measures taken so far, drawing criticism from Shadow Treasurer Tim Wilson who accuses Chalmers of "spending addiction" fueling inflation and higher interest rates.