Economists at the nation's largest retail bank have downgraded their economic growth forecasts in anticipation of a rapid rise in interest rates this year, although the Commonwealth Bank is not predicting a recession.
The prospect of a deteriorating growth outlook came as the Organisation for Economic Cooperation and Development warned that the Reserve Bank of Australia may need to hike interest rates more aggressively to contain inflation.
In its latest Economic Outlook, the OECD says strong global inflationary pressures and a tight labour market pose upside risks to inflation in Australia.
"(This) could lead the Reserve Bank of Australia to tighten monetary policy more aggressively, with potential negative implications for consumption, investment and economic growth more generally," the OECD said.
Treasurer Jim Chalmers said the report is an important contribution to the understanding of the substantial challenges facing the economy.
"High and rising inflation, rising interest rates and falling real wages all have consequences for our economy at a time of serious international uncertainty as well," Dr Chalmers told AAP.
Commonwealth Bank's head of Australian economics Gareth Aird expects a further 50 basis point increase in the official cash rate in July, matching the RBA's rate hike this week.
He anticipates this will be followed by 25 basis point hikes in August, September and November, taking the cash rate to 2.1 per cent from 0.85 per cent now.
CBA expects this will result in a significant slowdown in household spending, which will see overall annual growth slow to 2.3 per cent by the December quarter of this year, rather than running at 4.3 per cent as previously forecast.
Growth is then expected to slow to 2.2 per cent by end 2023, instead of 2.6 per cent.
"Our expectation is that Australia's current economic boom has a little further to run and the labour market will remain tight, so we don't foresee a bust," Mr Aird said.
RBA governor Philip Lowe has warned inflation is likely to be higher than the central bank had expected just a month ago, and the size and timing of further rate increases would be driven by incoming economic data.
Treasury Secretary Steven Kennedy - who is also a member of the RBA board - told a conference on Wednesday that inflation is likely to rise "potentially well above six per cent and remain there for the rest of this year".
AMP senior economist Diana Mousina expects the impact from an increase in energy prices from July 1 will add one percentage point to inflation, which she predicts will peak at seven per cent in the September quarter.
Annual inflation was 5.1 per cent in the March quarter, the highest in over two decades.
The Australian Bureau of Statistics' latest payroll jobs figures released on Thursday continue to point to a tightening labour market, although they are growing at a slower pace compared to the first half of 2021.
Payroll jobs rose 0.2 per cent in the month to May 14, recovering from a fall linked to Easter and the school holidays in April.
"The growth in payroll jobs during the first half of 2022 continues to be slower than the first half of 2021, when the labour market was recovering from the shocks that occurred in the first year of the pandemic," ABS head of labour statistics Bjorn Jarvis said.
CBA expects the unemployment rate will fall to 3.8 per cent in next week's full labour force report for May, its lowest level since August 1974 and down from 3.9 per cent in April.