Inflation has more than halved from its peak but Treasurer Jim Chalmers concedes it needs to moderate faster.
Following the Reserve Bank of Australia's decision to keep interest rates on hold in June and Governor Michele Bullock highlighting reasons to remain "vigilant" to inflation risks, the federal treasurer asserts price pressures are backing off.
A failure to bring inflation down fast enough could leave mortgage-holders waiting longer for rates cuts, with some economists warning a hike could be on the cards if the June quarter price statistics come in uncomfortably high.
The consumer price index rose 3.6 per cent in the March quarter, above the two-three per cent range targeted by the central bank but well down from the 7.8 per cent peak logged in the year to December 2022.
Dr Chalmers said Australia had made "substantial progress" on inflation, especially when focusing on the more comprehensive quarterly figures.
Australia has both quarterly and monthly inflation indicators. The latter does not measure all prices in each edition and can be volatile, but has moved higher for two consecutive months.
"In quarterly terms we've seen a really substantial moderation – that's a good thing, but we need it to moderate further and faster," Dr Chalmers told ABC radio on Wednesday.
In a post-meeting statement, Ms Bullock confirmed the monthly consumer price index was one of the inflation risks keeping the board wary, along with household spending that's been stronger-than-thought as people chewed into their savings.
Yet the economy has been very weak, growing just 0.1 per cent in the March quarter, in a sign higher interest rates are working to limit demand for goods and services and weigh on prices.
Moody's Analytics economist Harry Murphy Cruise said there were a number of factors testing the RBA's "slow-and-steady strategy".
The central bank is tolerating a long wait to bring inflation back to target by the second half of 2025 with the aim of preserving as many gains in the labour market as possible.
Mr Murphy Cruise said inflation was "starting to dig in its heels", complicating the RBA's efforts, as would cost-of-living supports contained in state and federal budgets.
It would all depend on how much was spent and how much was saved, he said.
"If they're spent, it would add to demand at the exact same time the RBA is trying to take it out, adding to underlying inflation even if the headline figure comes down," Mr Murphy Cruise said.
While not enough to trigger a "break in case of emergency" hike, they warranted close attention, he said.
In her post-meeting statement, Ms Bullock said the board viewed budgets within context as one piece of information in the broader economic climate.
It was important to think about budgets "holistically" rather than asking whether they are expansionary or contractionary, she said.
Dr Chalmers agreed budgets were "not the primary determinant of interest rate movements in the economy".
Yet Shadow Treasurer Angus Taylor said state and federal Labor governments were "throwing more fuel on the fire".
"We've seen big-spending state governments, Queensland, Victoria and NSW, on top of the federal government that has added $315 billion of spending," he said.
"This is how Labor governments think they can solve inflationary problems."
Also on Wednesday, the federal government unveiled its sustainable finance roadmap.
It says the plan will help mobilise private capital needed for Australia to become a renewable energy superpower.
