“The near‑term risk sits with an interest rate hike. But we expect the RBA to be on hold over the next six months given the economy is still contracting on a per capita basis, inflation is forecast to fall further, and the labour market is anticipated to loosen,” CBA’s head of Australian economics, Gareth Aird, said.

ANZ's boss Shane Elliott said the RBA might react to how Aussies use their stage 3 tax cuts when deciding on interest rates later in the year.

There could be 3 interest rate hikes

An interest rate rise will no doubt put households under pressure, but they could be in for a lot of pain if one forecaster is to be believed.

Judo Bank chief economic adviser Warren Hogan predicted there could be as many as three interest rate rises at the next few RBA meetings, bringing Australia closer to the rates set in New Zealand, the UK and the US.

“Everything points to the fact that 4.35 per cent isn’t the right level for the cash rate," he told the Australian Financial Review.

“The RBA’s strategy this cycle doesn’t seem to be working. They were hoping we could do less than the rest of the world because we were more exposed to the nominal channel of monetary policy through variable rate mortgages."

He reckons interest rates will head as high as 5.1 per cent to curtail inflation.

The government is focused on getting inflation lower

Labor has declared inflation the “primary focus” of this month’s federal budget, as the government walks the tightrope of lowering cost of living pressures while putting downward pressure on the bottom line.

Amid growing calls for spending cuts to take the heat off interest rates, and ahead of this week’s meeting of the Reserve Bank board, Finance Minister Katy Gallagher would not be drawn on what Labor’s budget tactics would be.

“[Inflation has] been a primary focus of our budget. And you’ll see that the investments we’re making are putting downward pressure on inflation," Finance Minister Katy Gallagher explained to the ABC.

“But at the same time, we need to get serious about the investments that we’re going to make to grow the economy as well.”

Leading economist Chris Richardson has warned the government to be careful of cash splashing in this year's budget.

"So inflation limits what the government can and will do in the budget," he wrote in his pre-budget analysis.

"That's likely to be a relatively binding constraint because it would be politically dumb to pour so much extra into the economy that the Reserve Bank of Australia had to raise rates."

- with AAP and NCA Newswire

Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.