A senior Reserve Bank official says the weakening Australian dollar will push up inflation, but only marginally.
While the currency has plummeted against the booming US dollar, RBA assistant governor Christopher Kent says it remains relatively strong compared to other major currencies.
Speaking at a Commonwealth Bank event in Sydney, Dr Kent said depreciation against the greenback would drive up the price of imported goods and services because a lot of global trade is invoiced in US dollars.
However, despite the Australian dollar falling by 14 per cent in the year against the US currency, when the Aussie was assessed on trade-weighted terms - which measures it against a basket of key global peers - it had only declined by two per cent.
That's why the RBA expects the depreciation in the dollar will lead to a "relatively modest" lift in consumer prices.
"A rough rule of thumb from our models suggests that the level of the consumer price index will be higher by only around 0.2 per cent in total over the course of a few years," Dr Kent said.
He also said the soaring US dollar would eventually start cooling demand for US goods and services.
"When most of the world's currencies depreciate against the US dollar, households and firms in those economies will not be as willing nor able to pay the same US dollar-denominated prices for their imports," Dr Kent said.
"Hence, we could expect those prices to decline, or at least rise less rapidly, over time."
High inflation has been putting Labor's pre-election commitment to drive real wage growth in jeopardy, but Finance Minister Katy Gallagher insists her party wasn't being unrealistic when it made the pledge.
She said her government wouldn't apologise for its desire to deliver real wage growth and it would continue to do what it could to back workers.
Senator Gallagher said supporting a minimum wage increase and backing better pay in the care economy showed the government was delivering where possible.
"We are dealing with a high inflationary environment that has changed quite significantly even since the pre-election outlook released by Treasury and Finance," she told ABC Radio on Monday.
"I don't think anyone's expecting when you've got inflation running between six and seven per cent that you're going to see wages outcomes keeping in line with that."
Australia's longer-term growth outlook has been downgraded, although Treasury has boosted its growth forecasts for 2022/23 by a quarter of a percentage point from predictions made in July.
It comes as internal Reserve Bank research says property prices could fall by as much as 20 per cent by the end of 2024 amid higher interest rates and a slowing economy.
The country's slowdown in domestic growth is expected to worsen in 2023/24, with Treasury cutting its forecast for growth by half a percentage point from July projections.
The budget forecast for real GDP growth in 2022/23 will be 3.25 per cent, while for the following year it will be slashed from the two per cent forecast in July to 1.5 per cent.
Treasurer Jim Chalmers said Australians hadn't been immune from rampant global inflation and cost of living pressures.
The jobless rate has also been revised upwards and is now expected to peak at 4.25 per cent.
Inflation is still tipped to hit 7.75 per cent at its peak, but it will remain higher for longer as flooding in parts of the country pushes up fruit and vegetable prices.
Despite the pain households are feeling, the treasurer says there will be limited cost of living relief in the budget as generous support could add to inflation.