The federal Treasurer has dubbed a rise in interest rates as "difficult news" for home owners and foreshadowed life in Australia is set to become even more expensive.
The Reserve Bank of Australia on Tuesday raised the cash rate half of a percentage point, taking it to 0.85 per cent.
If passed on to bank customers, the higher-than-expected rate rise will add $133 a month on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1 million.
Treasurer Jim Chalmers said people would feel the economic pain of inflation with housing and living costs set to rise even further.
"This will be very difficult news for all of those Australians who are already facing skyrocketing costs of living in this country," he said.
Prime Minister Anthony Albanese, speaking from Indonesia, refused to comment on the RBA's rate rise, saying he would not comment on domestic matters while outside Australia.
Mr Chalmers said the RBA's rate rise meant the government would face higher costs repaying its almost $1 trillion in debt.
He said the government would announce more cost of living measures when he hands down a budget in October.
"This cost of living crisis has been brewing for the best part of a decade," Mr Chalmers said.
"It will take more than two and a half weeks to turn around. We have been up-front about that.
"We want to work with Australians, we want to work with all parts of our economy to do what we can to get on top of this inflation challenge and the interest rate rises that accompany it."
There are forecasts the cash rate could hit 2.5 per cent by the end of next year.
If that happened, a borrower with a $500,000 loan balance could see their monthly repayments rise by $652 a month by Christmas next year.
"It is the universal expectation across economists, the government and the reserve bank that this inflation challenge will get harder before it gets easier," Mr Chalmers said.
Shadow Treasurer Angus Taylor said while the RBA was independent of government, Labor needed to adopt measures that would reduce the likelihood of further rate rises.
"Today is a tough day for the 3.5 million Australian families who have a mortgage," he said.
"Making ends meet is tough in an inflationary environment but it's even tougher with rising interest rates."
The union movement has cited soaring living costs as the reason it is demanding a boost to the minimum wage.
Forecasts suggest inflation could continue to surge to 6 per cent by the end of the year.
The ACTU wants the Fair Work Commission to lift the minimum wage by 5.5 per cent. That is above the current annual inflation rate of 5.1 per cent, which is the rate the government has recommended Fair Work lift the minimum wage by.
