In a comment sure to raise alarm bells for some borrowers, Bullock revealed “the option of raising interest rates” had been discussed during the meeting but that “the board decided on balance to stay where it was” on rates.

While interest rates are expected to remain unchanged for the moment, more bad news on inflation will increase the risk of further hikes.

That would be terrible news for many home borrowers; the Herald revealed last week households with a mortgage already have an average of $10,300 less to spend on non-essentials compared with 2020, thanks to inflation and higher interest rates.

As the Reserve Bank tries to bring inflation back to its target, the onus is on the federal government to moderate demand in the economy by limiting spending. Independent economist Chris Richardson warns that every additional $7 billion a year in federal spending risks another quarter of a percentage point interest rate increase.

Chalmers claims next week’s budget will “strike the right balance” between getting inflation under control, easing cost-of-living pressures and supporting economic growth.

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He is right, this is not the time for slash-and-burn austerity. But there are worrying signs federal spending will not be sufficiently restrained given the inflationary risks.

The budget is on track to post a surplus this financial year, but Chalmers admitted deficits would be bigger over the next four years than predicted only six months ago.

He said this resulted from “smaller revenue upgrades, the need to make room for unavoidable spending pressures, and investments in the future drivers of growth in our economy”.

Even so, allowing the fiscal position to deteriorate threatens to put upward pressure on prices, potentially undermining the Reserve Bank’s efforts to reduce inflation.

That poses a significant political risk. Should interest rates rise further in the coming months, federal budget policy would inevitably be blamed as a contributor, damaging the standing of the Albanese government with a general election due next year.

Australia’s debt-laden households need Chalmers to keep spending in check; the best way for him to fight the cost-of-living crisis is with hard-headed fiscal discipline.

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