Inflation was 3.6 per cent in the year to March and is expected to rise slightly to 3.8 per cent in the year to June, while the labour market has remained strong with the unemployment rate, currently 4.1 per cent, well below pre-pandemic levels.

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Philip said the Reserve Bank faced a critical juncture.

“What is inflation at 3.5 per cent for a bit longer versus much higher unemployment and recession? That’s the trade-off,” he said.

“We don’t think the bank will raise rates, and we don’t think they should raise rates.”

Krishna Bhimavarapu, Asia Pacific economist for Investment management firm State Street Global Advisors, also believed an August rate rise would be a mistake.

Bhimavarapu said there were signs the labour market was cooling, household spending was weak, and there was a chance inflation could reach the Reserve Bank’s target range of 2–3 per cent this year.

“The economy is at a tipping point, where the unemployment rate could rise beyond [the RBA’s] comfort level,” Bhimavarapu said.

“Any further hiking could exacerbate the situation and tip the economy into recession.”

The Deloitte report pointed to New Zealand as a warning case. The country had a similar pandemic response and economic structure, but its central bank raised rates far higher than Australia’s – the New Zealand cash rate is 5.5 per cent.

That economy has spent the past 18 months dipping in and out of a technical recession, and the unemployment rate in New Zealand has gone from being well below Australia’s rate to above – at 4.3 per cent.

Philip said the kicker was inflation there has not been tamed more quickly than in Australia, and there were lessons there for the RBA.

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One lesson was understanding the drivers of inflation – which Deloitte does not believe are issues of demand outstripping supply at this point.

“The economy’s not overheating, which is the main reason you use the instrument of interest rates to curb inflation,” Philip said.

“The household and consumer side of the economy has been struggling for quite a while, buffeted by inflation, higher interest rates, and what’s driving these things? Things like higher mortgage repayments, soaring rents.”

However, the Deloitte report said stage 3 tax cuts will buoy household spending over the coming months.

“If it wasn’t for fiscal policy, the economy might be in recession in the coming year,” it said.

Treasurer Jim Chalmers said the report confirmed that the government’s economic plan was responsible and that households would be in even more trouble if not for Labor’s management.

“We are realistic about the challenges facing our economy, including the global uncertainty, geopolitical tensions and softer growth detailed in these forecasts,” he said.