Construction work fell in the second quarter, although a backlog of unfinished projects is expected to keep the industry busy for the rest of the year.
Total construction work dropped 3.8 per cent in the three months to June, with residential building activity falling by 6.8 per cent, according to the Australian Bureau of Statistics.
Non-residential building activity fell by 1.1 per cent for the quarter, and engineering work sunk by 2.7 per cent.
A modest lift in construction activity was expected by analysts.
BIS Oxford Economics' Nicholas Fearnley said the latest ABS data showed there was less demand for home building due to interest rate hikes and rising construction costs.
However, he said the backlog yet to be delivered would keep home builders in work throughout the remaining two quarters of 2022.
Mr Fearnley also expected building activity outside the residential sector to remain elevated due to a decent pipeline of public projects, such as schools, train stations and hospitals.
He said engineering work was tipped to grow due to a large pipeline of publicly-funded transport projects.
"However, rising construction costs and industry capacity constraints will see governments struggle to get through their announced project pipelines on time," Mr Fearnley said.
The drop in finished construction activity follows a 17.2 per cent fall in building approvals in July, suggesting that successive rate hikes are dampening activity in the construction sector.
Next week, the central bank is broadly expected to hike the official cash rate for the fifth month in a row.
The treasurer has reiterated that he doesn't want to fuel inflation in his first budget due in October.
"The budget has got a big job to do, because we've got to make sure that we're not adding to inflationary pressures that the Reserve Bank is dealing with independently," he told reporters on Wednesday.
Dr Chalmers said the budget's focus would be on supply side pressures.
"Whether that is labour shortages, whether it's some of the issues around self-sufficiency - these are key priorities in the budget," he said.
He said the budget would contain "familiar" initiatives to help households manage soaring living costs, including boosted childcare supports, relief for medicine costs and measures to "get wages moving again".
