Inflation impact warning as ex-tropical cyclone Alfred blows $1.2bn hole in next week’s federal budget

Speaking in an ABC Radio interview, the treasurer said “some impact on inflation” was being considered by the government in the wake of the ex-cyclone, which hit Queensland and northern New South Wales earlier this month.

It comes after Mr Chalmers confirmed $1.2bn in the federal budget for the recovery from the wild weather.

The treasurer had already estimated up to $2bn in budget variations to account for natural disasters last December – planned spend that received severe backlash before Christmas as Australians continued to battle against a high-interest rate environment without any relief.

Despite the Reserve Bank of Australia’s 0.25% cash rate cut last month, hopes of further interest rate relief on 1 April are looking progressively more unlikely.

“It is a pretty hefty hit,” Mr Chalmers said of his $1.2bn provision “There’s going to be a very substantial economic cost as well. It will be one of the key influencers on the budget.”

More than 44,000 claims have been lodged with insurers as of 13 March, according to the Insurance Council of Australia, a figure still expected to increase as policyholders in Queensland and New South Wales assess property damage.

Mr Chalmers’ warning on the subsequent damage the ex-cyclone will unleash on inflation not only impacts next week’s budget but the next quarterly inflation figures.

The Australian Bureau of Statistics will hand down its findings for the first three months of the year on 30 April.

While the quarter was well on-track to be the first with core inflation back inside the RBA’s 2-3% target, the December quarter figure of 3.2% might now be the closest the country gets in the immediate future.

Markets are currently pricing in just a 12% chance of another cut at the RBA’s next board meeting, blowing holes in Aussies hopes for a year of multiple cuts.

“The best way to think about the economic impact is that around five million people were in harm’s way of this cyclone – almost two million homes,” Mr Chalmers said. “We lost something like 12 million work hours out of the economy.”