Australia has the equal-highest core inflation rate among major developed economies as the Albanese government is slammed for not doing more to rein in spending.

Data platform Trading Economics revealed Australia also has the second-highest core inflation rate across all advanced economies, beaten by only Iceland.

Australia’s trimmed mean inflation rate was 3.6 per cent in the 12 months to May, while headline inflation came in 0.2 per cent lower at four per cent.

The trimmed mean inflation, the Reserve Bank of Australia’s preferred measure, sits above the target range of two to three per cent. 

Australia’s position at the top of the global inflation rankings has some experts blaming the Reserve Bank, while others blame the Albanese government. 

AMP chief economist Shane Oliver told NewsWire public spending was putting pressure on inflation.

‘The problem in Australia is the temptation to spend too much money,’ he said.

‘This is creating problems in the economy by using up spare capacity and adding to inflation.’

Australia has the equal-highest core inflation rate among major developed economies as the Albanese government is slammed for not reining in spending

He claimed the May 12 budget may have promised spending cuts, but those savings were planned too far down the line.

‘We saw some spending cuts in NDIS spending, but that is the other side of the next election, so there’s very little reduction in government spending in the near term, in fact it is still growing at a fairly solid clip,’ he said. 

KPMG chief economist Brendan Rynne claimed the Reserve Bank made the mistake of cutting the cash rate three times in 2025.

‘There was a general misreading of what was happening in inflation in the first half of last year, on the expectation that inflation was going to come back down within the target range, and therefore the RBA took its foot off the brake and started loosening monetary policy too early,’ he told the Australian Financial Review.  

The RBA held the cash rate at 4.35 per cent in June after it increased interest rates by 0.25 percentage points in February, March and May due to inflation picking up again.

The RBA is using a ‘narrow path’ strategy, increasing interest rates without hurting the job market. 

Mr Rynne disagreed with the approach, saying it focused too much on keeping people employed and that the cash rate should have been higher or kept for longer. 

‘This narrow path idea of keeping your employment gains and slowly bringing inflation back down has lost its currency,’ he said.

The country’s trimmed mean inflation increased to 3.6 per cent in the 12 months to May (stock image)

‘The RBA recognises from a credibility perspective, and from an inflation expectations perspective, they’ve got to be seen to be more active in getting inflation back down, and if that’s going to be at the cost of some employment, so be it.’

Mr Rynne said strong hiring in government-funded sectors such as health, education and the public service had helped keep the jobs market tight, contributing to inflationary pressures.

Treasurer Jim Chalmers said the country’s inflation challenge had existed before the conflict in the Middle East and had been made more difficult by it. 

He said the issue wasn’t only limited to Australia.    

‘We’re seeing this across the world, with underlying inflation increasing in the US, the UK and New Zealand,’ Chalmers said.

‘If you want to make international comparisons, you need to make the full comparison – Australia has faster economic growth than every G7 country except the US and we have faster jobs growth than all of them.’

Former head of RBA’s economic research department John Simon also criticised the ‘narrow path’ approach, saying it was the cause of inflation increasing as much as it has. 

‘It’s been a deliberate policy choice. They’ve been quite explicit. We’re going to let inflation run higher for longer than in other countries,’ he said. 

The Reserve Bank wants inflation to fall from 3.6 per cent to around 2.5 per cent, so it is using a ‘narrow path’ strategy (pictured, RBA governor Michele Bullock)

‘They said the trade-off was lower unemployment, but monetary policy can’t deliver permanently lower unemployment.’

‘It’s only a temporary trade-off. The costs, however, in terms of elevated inflation expectations that are now being built into wages and prices, are much more persistent.’

He also put the inflation problem down to domestic price pressures rather than external factors. 

‘What’s been experienced in Australia is not a global phenomenon,’ Mr Simon said.

‘Because to the extent that there’s a global phenomenon, you would think Australia would be around the average [for inflation] – or maybe half a per cent higher given a slightly higher inflation target.’

As a result, Mr Simon said it would be harder to solve the problem. 

‘The consequence, I think, is going to be higher unemployment than if [the RBA] had actually got on with the job in the first place,’ he said.