The International Monetary Fund has called for Australia's central bank to keep lifting interest rates to bring inflation down faster.
Consumer price growth remains "well above" the Reserve Bank of Australia's target range, the global organisation has warned, with services inflation proving sticky as is the case in most advanced economies.
"Staff, therefore, recommend further monetary policy tightening to ensure that inflation comes back to the target range by 2025 and minimise the risk of de-anchoring inflation expectations," IMF staff wrote in an assessment of Australia's economy.
Headline inflation lifted 5.4 per cent annually in the September quarter, well below the 7.8 per cent peak in December but far above the central bank's target range of two to three per cent.
The stronger-than-expected dataset has fuelled expectations of another interest rate hike when the central bank board meets on Tuesday.
The IMF said federal and state governments should help take pressure off inflation by rolling out rail, road and other public infrastructure projects at a "more measured and co-ordinated pace", tempering demand for workers and materials that are already stretched thin.
Several projects are set to be cut or delayed as the federal government and some states assess the viability of their infrastructure pipelines.
Research released by ANZ economists on Wednesday found governments were facing tough decisions to balance the infrastructure needs of growing populations while managing inflation and debt risks.
The Commonwealth's budget strategy of banking revenue windfalls was commended by the IMF, although the organisation urged continued co-ordination between monetary and fiscal policy in the interests of "more equitable burden sharing".
"Otherwise, interest rates would have to be even higher, putting the burden of adjustment disproportionately on mortgage holders," the organisation said.
Living costs are still rising more quickly for working-age borrowers than for any other cohort due to higher mortgage repayments, based on Australian Bureau of Statistics data released on Wednesday.
Mortgage interest charges grew 9.3 per cent in the September quarter, down from 9.8 per cent in the quarter prior.
The bureau said the big quarterly increase was driven by expiring fixed rate loans rather than movements in the official cash rate, with the RBA on hold for the past four meetings.
Treasurer Jim Chalmers said the IMF's independent assessment of the economy supported his government's budget strategy, with inflation data released last week showing its cost-of-living policies took half a percentage point off inflation.
"This report welcomes the government's broader economic agenda, including investments in cheaper and cleaner energy, cheaper childcare, and skills and vocational training, as well as policies to boost housing supply," he said.
Opposition finance spokeswoman Jane Hume said it was clear more needed to be done to tackle inflation.
"We know that inflation is going to be higher for longer, because of Labor's lack of action," she said on Wednesday.
The IMF said Australia's economy has proved resilient, although growth is forecast to slow or 1.25 per cent in 2024.
Some risk factors could lead to even weaker growth, such as a prolonged slowdown in China.
But the global organisation was most concerned about upside risks to growth and their impact on inflation, including higher migration, faster execution of public investment, and rising housing prices encouraging households to spend.
Energy - particularly petrol - and food prices were also identified as lurking price pressure risks, as well as uncertainty around household consumption patterns and how willing people were to draw down on their savings buffers.
The IMF also made some less pressing recommendations including focusing on tax reform, productivity growth and supporting the green transition.
