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Spending on nice-to-haves has started to drop off as rapid interest rates and cost of living pressures continue to chew into household budgets.

Official retail sales data recorded a slightly higher-than-expected lift of 0.4 per cent in March, which followed a modest 0.2 per cent uptick in February.

But given the Australian Bureau of Statistics retail trade numbers can be driven by people buying more as well as inflation - which remains exceptionally high - Commonwealth Bank of Australia economist Belinda Allen said this was a soft result.

In nominal terms, retail trade was flat over the quarter and down from 0.9 per cent in the December quarter.

"Given the rapid rate of population growth per capita spending is even weaker," Ms Allen said.

Spending on food and eating out drove the monthly improvement in retail trade, which ABS head of retail statistics Ben Dorber chalked up to high food inflation.

"Businesses in cafes, restaurants and takeaway food services are passing on their rising costs to consumers through price rises, while also benefiting from strong demand driven by the continued return of large-scale cultural and sporting events," he said.

Sales across cafes, restaurants and takeaway food services lifted 1.5 per cent, whereas food retailing lifted one per cent.

But spending on discretionary items has started to dry up.

Clothing, footwear and personal accessory retailing fell the most, dropping one per cent, followed by household goods, which sunk 0.4 per cent.

Mr Dorber said the bureau's quarterly retail sales volumes, due next week, would shed light on how high inflation was influencing turnover growth numbers.

The retail trade data follows the Reserve Bank's decision to hike interest rates on Tuesday by another 25 basis points.

Treasurer Jim Chalmers said the rate hike was "pretty blunt, pretty brutal" reminder of the challenges in the economy in the lead up to the May budget.

"Particularly this inflation challenge, which your viewers are feeling every day as they feel these cost-of-living pressures," Dr Chalmers told Nine.

Opposition finance spokesperson Jane Hume said many Australians were struggling to put food on the table as evidenced in an interim cost of living report from a parliamentary committee.

"Despite Labor's promise to lower the cost of living prior to the election, cost of living pressures have only compounded since Labor came to government and now more Australians are turning to charities for assistance to make ends meet," she said.

As well as delivering another rate hike on Tuesday, the RBA governor previewed updated economic forecasts in a statement, with the central bank now forecasting GDP rising 1.25 per cent in 2023 - down from 1.6 per cent in an earlier forecast.

The bank also sees inflation falling more quickly in 2023.

In a speech on the bank's updated forecasts on Wednesday, RBA head of economic analysis Marion Kohler said stronger-than-expected population growth was impacting the economy in several ways.

This population growth, triggered by the faster-than-anticipated return of overseas students and backpackers paired with fewer people leaving Australia, was driving demand for rentals but would also boost investment in new dwellings in the long run.

Dr Kohler said the bigger population would also fuel employment growth, although because most of the arrivals are students, this would be concentrated in larger cities and in sectors like hospitality.

She also said the improving property market could lift consumption levels, with higher asset prices often leading to more spending as people feel wealthier.

© AAP 2023

The treasurer says the latest interest rate hike served as a blunt reminder that high inflation was keeping the economy under the pump.

The Reserve Bank opted to lift the cash rate by another 25 basis points in May in response to the tight labour market, persistent services price inflation and the turnaround in the residential property market.

Treasurer Jim Chalmers said the move surprised markets, with the benchmark S&P/ASX200 index plunging 0.8 per cent in the three minutes after the central bank's announcement.

Asked if the hike blindsided the government as he put the finishing touches on the federal budget, Dr Chalmers said he did not pre-empt or second-guess decisions by the independent central bank.

"We've got our own job to do and that's my focus," he told reporters in Canberra.

"One of the important tasks of the budget is to make sure that we can provide cost of living relief without adding substantially to the inflationary pressures in our economy."

Speaking at an event in Perth on Tuesday night, RBA Governor Philip Lowe said he was confident he could deliver a soft landing for the economy after the board pulled the trigger on another interest rate hike.

Asked if the central bank was playing "recession roulette" by hiking rates again, he told an RBA board dinner in Perth the "narrow path" to dodge a recession "wasn't getting any narrower" but there was still uncertainty clouding the outlook.

He also said returning inflation to target while preserving most jobs hinged on the population believing inflation would come down quickly.

"If people think inflation is going to remain high then, understandably, they will adjust their behaviour," he said.

"Firms will be more willing to put up their prices and workers will seek larger pay rises."

Once inflation expectations become entrenched, he warned, it is much harder to get inflation down and it would require even more interest rate hikes and more job losses.

The 25 basis point hike in May brought the cash rate to 3.85 per cent.

Many experts expected the central bank to keep the cash rate on hold again after pausing in April but incoming data - including inflation, jobs and home price numbers - collectively built the case for another hike.

New data measuring changes in activity in Australia's industrial sectors pointed to 12 months of contraction, with the latest rate rise likely to pile more pain onto businesses.

The Ai Group Australian industry index sunk 14 points to -20.1, with a negative reading signalling a contraction in activity.

Ai Group chief executive Innes Willox said businesses were stuck between supply constraints and falling demand.

"Yesterday's decision by the Reserve Bank to raise interest rates, while necessary to contain inflation, will add more pain to businesses facing a worsening economic outlook," Mr Willox said.

While inflation has passed its peak, industrial sectors still reported strong upwards price pressures.

Activity and sales also sunk into contraction as demand tapered off.

© AAP 2023

Prime Minister Anthony Albanese is expected to publicly swear allegiance to King Charles at his coronation after extending an invitation for the monarch to visit Australia.

The prime minister had a private audience with King Charles at Buckingham Palace in London on Tuesday, local time, ahead of the coronation at the weekend.

"It was a pleasure to meet King Charles III again at Buckingham Palace and an honour to represent Australia at his coronation," Mr Albanese said in a tweet after the meeting.

Mr Albanese reiterated during the audience that the King and other members of the royal family were welcome to visit Australia.

The prime minister is among a contingent of Australians invited to the coronation along with Governor-General David Hurley and state governors.

In an interview with broadcaster Piers Morgan, Mr Albanese said he would do "what is entirely appropriate as the representative of Australia" when asked if he would swear the oath of allegiance to the King.

Members of the public watching the coronation have been asked to join the oath of allegiance, but several prominent government ministers have said they will not take part in the pledge.

Treasurer Jim Chalmers said he was "unlikely" to pledge allegiance to the King during the coronation or watch the ceremony.

The Australian Republican Movement had called for Mr Albanese to stay silent during the oath.

Mr Albanese told Morgan he had a lot of respect for King Charles despite being a life-long republican, adding that he didn't expect to see an "imminent" referendum on removing the monarch as head of state.

"When the demand is there, I'm sure a vote will be held," he said.

The Australian delegation set to attend the coronation includes Matildas captain and football star Sam Kerr, singer Nick Cave, Aboriginal artist Jasmine Coe, comedian Adam Hills and London-based nurse Emily Regan.

In honour of the coronation, the Australian government will contribute $10,000 to the Western Australian conservation charity Friends of the Western Ground Parrot.

Mr Albanese said King Charles had long championed conservation and the government was pleased to mark the event by helping to protect the critically endangered bird.

The King, who is the monarch of 14 overseas realms including Australia, will host a lunch for prime ministers and governors-general at Buckingham Palace and also attend a Commonwealth Heads of Government Meeting on Friday, the day before his crowning.

Mr Albanese said he would be "meeting with other world leaders to strengthen Australia's relationships around the world" during his visit to the UK.

© AAP 2023