Inflation warnings issued by the federal treasurer in the event of an escalation in the Middle East conflict have been dismissed by the opposition as smoke and mirrors.
In a speech at the G20 finance talks in Washington DC, Jim Chalmers told his counterparts an expansion of the conflict risked persistent inflation for the global middle class.
"In seeking ceasefire and de-escalation we are focused on the human catastrophe but there are economic consequences too," he said.
Opposition deputy leader Sussan Ley said the treasurer was engaging in "a bit of smoke and mirrors" by attributing inflation to events outside the country.
"He's suggesting the inflation we're seeing at home is because of factors overseas," she told Seven's Sunrise program.
"The problem is the UK, the US, Canada, New Zealand are all seeing inflation and interest rates come down."
Dr Chalmers says Australia's inflation remains higher for two reasons.
Firstly, it peaked lower and later here than in most comparable countries.
Secondly, many nations were now experiencing higher unemployment, weaker growth or a combination of the two.
"What we've done in Australia is we've focused primarily on the fight against inflation but we've done that without ignoring the risks to growth," Dr Chalmers told Bloomberg TV on the sidelines of the meetings of the IMF, World Bank and G20 finance ministers.
Oil prices shot up roughly 10 per cent in the week Middle East tensions intensified in October, with the treasurer warning sustained upward pressure could "prolong the fight against inflation and threaten the soft landing we all seek".
Treasury's rough rule of thumb implies every 10 per cent increase in the oil price sustained over a year trims Australia's gross domestic product by 0.1 per cent and adds about 0.4 percentage points to inflation.
Mr Chalmers' comments landed ahead of the all-important September quarter inflation data.
Financially stressed households will be looking for signs cost-of-living pressures are easing and the Reserve Bank of Australia can start thinking about cutting interest rates.
Hints consumers are mostly saving rather than spending extra income from stage three tax cuts should be welcomed by the central bank which is alert to the risk of a spending boost pushing up inflation.
Westpac analysis of customer transactions and balance sheets suggests households are spending about 16 per cent of the income boost since July and squirrelling away the rest.
Westpac economist Jameson Coombs said households were broadly using the extra cash to rebuild savings and pay down mortgages.
"While it might be that the spending response takes a while to come through, our results also suggest some of the upside risks to consumption that the RBA has previously highlighted are not coming to pass," he said.
