Lowe said inflation was likely to peak later this year around 7.75 per cent,before edging down to 4 per cent through next year and then 3 per cent in 2024.

He signalled people expecting respite in rate increases were likely to be disappointed.

“The[bank] board expects to increase interest rates further over the months ahead,but it is not on a pre-set path,” he said. “The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”

Lowe said the economy was continuing to grow “solidly”,noting unemployment could edge lower than its current 48-year low of 3.4 per cent.

“Job vacancies and job ads are both at very high levels,suggesting a further decline in the unemployment rate over the months ahead. Beyond that,some increase in the unemployment rate is expected as economic growth slows,” he said.

Wages growth continues to be outpaced by inflation,but Lowe said there were “some pockets where labour costs are increasing briskly”.

Ahead of the bank’s move,Prime Minister Anthony Albanese said the government understood the cost of living pressures facing people.

He said the government would soon honour its election promises,bringing to parliament legislation for itscheaper medicine andchildcare measures,while it hadsupported a large increase in the minimum wage.

“We understand the pressures that people are under and we wanted to undertake measures that alleviate cost of living pressures,” he said.

Chalmers said higher interest rates also meant tougher decisions for the government,as they raised the cost of servicing the government’s near $1 trillion in debt.

“It is our job to do what we responsibly can to help Australians deal with these pressures in the near term and to build a much more resilient economy into the future that is able to withstand some of these global and domestic shocks and our jobs summit,our economic plan our budget,” he said.

The Greens’ treasury and economic justice spokesman,Nick McKim,said Lowe should resign as governor for “misleading Australians about interest rate rises”.

“Dr Lowe induced hundreds of thousands of Australians into taking out massive mortgages by effectively saying that interest rates would not rise until 2024,” he said. “Having failed to keep that commitment,he should now resign. The preconditions that Philip Lowe set for increasing rates have not been met.”

The RBA’s decision was made after figures from the Australian Bureau of Statistics showed consumer spending continuing to increase.

Spending by households in July was 18.4 per cent up on the same month last year. Spending on services surged by 28.4 per cent,largely due to the reopening of key parts of the economy,but expenditure on goods was also up by 9.5 per cent.

Discretionary spending was up by 19.8 per cent while for essential goods it was up by 17.1 per cent.

The bureau’s head of macroeconomic statistics,Jacqui Vitas,said July was the 17th consecutive month of through-the-year increases in household spending. Expenditure across all categories was up.

“There were particularly strong increases in spending on clothing and footwear (up 45 per cent),transport (up 35.4 per cent) and hotels,cafes and restaurants (up 34.9 per cent),” she said.

“These increases were coming off the back of the COVID-19 Delta lockdown impacts that we saw last year,when there was reduced spending in these spending categories due to lockdowns.”

Compared to the pre-pandemic period,household spending was up 11.9 per cent on July 2019 levels. Spending on furnishings and household equipment was up 22.4 per cent,clothing and footwear by 22.3 per cent and recreation and culture was up by 21.6 per cent.

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