They say a week is a long time in politics, and it turns out a month is an eternity when it comes to economic forecasting.

Just under six weeks ago, Treasurer Josh Frydenberg handed down a pre-election budget.

A couple of weeks after that, the Treasury and the Department of Finance independently signed off on a pre-election fiscal outlook with essentially the same economic forecasts.

Now, just a month later, the Reserve Bank has released its latest forecasts, which are a radical departure from its previous outlook, and also from Treasury's much more recent one.

The key shift, of course, is on inflation: The main reason the Reserve Bank shifted rapidly from, as recently as late last year, expecting no rate rises until 2024, and in February saying it would be "patient" on rates, to implementing the first hike in more than 11 years this week.

Whereas, in its previous February quarterly Statement on Monetary Policy, the RBA expected consumer price rises to peak at 3.75 per cent in June, it now expects inflation to hit 5.5 per cent this quarter and keep rising to 6 per cent by the end of the year, in part due to the expiration of the six-month cut in fuel excise that is suppressing petrol prices for the time being.

Having previously expected its preferred measure of consumer prices, which strips out the most-volatile moves, to peak just above target in June at 3.25 per cent, it now expects that number to hit 4.75 per cent by year's end.

More worryingly for the central bank, that measure is not forecast to come back down to the top of its 2-to-3-per-cent target range until June 2024, a point highlighted by RBA governor Philip Lowe at his press conference on Tuesday.

And even that forecast is based on the assumption that interest rates will rise many more times over the next couple of years.

Traditionally, the RBA has used market pricing as the basis for the path of interest rates used in its forecasts, but traders are pricing in a cash rate well above 3 per cent next year, which almost all local economists believe is highly unlikely.

So, this year, in a break from past practice, the RBA has assumed a path for the cash rate "broadly in line with expectations derived from surveys of professional economists and financial market pricing".

Forecasts from the major banks' economists range from between 1.6 to more than 3 per cent for the cash rate peak over the next few years, with RBA governor Philip Lowe saying a longer-term cash rate should at least match the mid-point of the inflation target, which is 2.5 per cent.

The key takeaway is that these forecasts hint it will require a combination of much higher interest rates — probably up at least another 1.5 percentage points over the next two years — as well as a resolution to some of the supply chain disruptions caused by Russia's invasion of Ukraine and COVID-19 outbreaks in China before consumer price rises come back under control.

Wage rises will take a while to overtake inflation

Aside from rising interest rates for borrowers, the bad news for most of us is that, while we wait for price rises to slow down, our wages are unlikely to be keeping up.

The most-recent wage price index for December showed an annual rise of 2.3 per cent.

Inflation was running at 3.5 per cent over the same period, so workers who didn't get bonuses or a promotion saw the purchasing power of their pay packet go down.

Even including bonuses and promotions, a broader measure of wages still fell short of price increases: 3.3 versus 3.5 per cent.

The next wages figures are due out in just under a fortnight and the RBA is expecting pay rises to pick up, but nowhere near as fast as prices have.

While inflation is expected to end the year at 5.9 per cent, wages are expected to have only risen roughly half that (3 per cent).

Even including bonuses, promotions and moves to higher-paying jobs, workers are expected to see a total pay rise of 4.4 per cent for every hour they work.

The good news is that, by the middle of next year, the Reserve Bank expects the increase in average earnings per hour to finally overtake the rising cost of living, and, by the end of next year, the wage price index is also expected to exceed inflation — meaning you won't need to change jobs or get a promotion to stay ahead.

House price fall a 'downside risk'

Of course, that depends on the RBA's forecasts proving correct, and we've had a perfect illustration this year of how hard it can be for economists to look even a month ahead, let alone a year or more.

The Reserve Bank itself warns of risks to its forecasts.

A key one is the response to rising interest rates, especially in the housing market.

In its recent Financial Stability Review, the RBA's modelling warned of a possible 15 per cent fall in housing prices if interest rates rose 2 percentage points.

"The sensitivity of asset prices to rising interest rates is uncertain, particularly in the case of housing, where prices are high relative to incomes," the bank notes in the report.

"While many households would be well-placed to absorb higher interest costs without sharp adjustments to spending, some households have low savings buffers and high debts relative to incomes, and their spending may fall more sharply than others."

The RBA already has a much-more downbeat forecast for household consumption next year and the year after, than Treasury's budget.

That is a key reason why its forecast for economic growth (GDP) is also around half a percentage point lower than Treasury's for the next couple of financial years, at 3.1 and 2 per cent.