“Inflation has risen because of high and rising government spending and interference in the economy. Australia’s current wave of inflation is a home-grown problem, caused overwhelmingly by government mismanagement” said Adam Creighton, Chief Economist at the Institute of Public Affairs.
IPA analysis of Australian Bureau of Statistics consumer price index (CPI) data reveals that government-influenced inflation is running hot, driven by price hikes across childcare, education, healthcare, utilities, and insurance. Meanwhile private market inflation is much more moderate.
Since July 2024, government-driven inflation is up by 12 percent, compared to just 2 percent for market-driven inflation.
“Inflation in Australia today is a problem caused by government spending and meddling. Over the past four years, we have seen relentless increases in spending, taxes, and regulation of the private economy. We are now seeing the result: a wave of government-driven inflation which is punishing Australian families and driving real wages growth into the ground.”
“Market-driven inflation has largely been moderate, helping to push inflation towards the RBA’s target band of 2-3 percent. It is government-driven inflation which has failed to return to the RBA’s band.”
“A total lack of spending restraint on the part of the federal and state governments is driving Australia off an inflation cliff. Our living standards have been hammered, and we are setting up future generations for a wave of higher taxes because our political class has lacked the will and courage to contain their runaway spending.”
Figure 1: Government-driven inflation has been running well ahead of market-driven inflation
Further, the newly released CPI data shows that non-tradable inflation in the year to July 2026 (4.4 percent) was more than double the tradable inflation rate (1.7 percent). Tradables are goods and services that are highly exposed to international trade influence, while non-tradables are goods and services most influenced by domestic factors.
“Subsidies and regulations, however well-meaning they seem, serve to push up costs and demand at the same time which encourages yet further calls for government intervention, ultimately creating disastrous outcomes for taxpayers and consumers”.
“Worse, governments tend to encroach into non-discretionary sectors like healthcare, childcare and education, where soaring costs can’t easily be avoided”
“Treasurer Jim Chalmers and the Albanese government more broadly have been blaming Australia’s new wave of inflation on international factors, such as the Iran war and other trade disruptions. This is completely and demonstrably false. It is their misguided policies which are driving inflation. Home-grown inflation is running at more than double the rate of trade-influenced inflation unlike in the US where it’s the opposite.”
“It is long past time that governments around Australia exercise some restraint, and pull themselves back into line on taxes, spending, and interference in the economy.”
The analysis was based on fourteen common goods and services, which were categorized into two baskets of seven: one with high levels of government intervention, regulation, or spending, and the other largely driven by the private market. The government basket is comprised of alcohol and tobacco, housing, utilities, child care, health, education, and insurance. The market basket is comprised of food and non-alcoholic beverages, clothing and footwear, furniture, small electric household appliances, motor vehicles, telecommunication equipment and services, and equipment for sports, camping and open-air recreation. These fourteen categories of spending make up a large share of an ordinary household budget.
Recent research from the IPA has revealed that the four most indebted states face a covid debt refinancing cliff, with annual interest costs to increase cumulatively by $8.1 billion from 2030.
