Treasurer Jim Chalmers has warned the cost of living will continue to “go through the roof” with the Reserve Bank of Australia (RBA) Governor Philip Lowe predicting inflation to hit 7 per cent by the end of the year.

In a speech to the American Chamber of Commerce in Australia on June 22, Lowe said that while he expects inflation to decline early next year, it will take a “couple of years” before the cost of living returns to normal.

“In the next month or so, we’ll be doing a full forecast update, but it’s going to be some years, I think, before inflation is back in the 2-3 per cent range,” Lowe said.

“That is why it is important that we chart this path back there and people have confidence that we will do that.”

The Governor said there were “a lot of positives” like supply chain issues resolving and the likelihood of prices falling soon, leading him to believe Australia will avoid a recession.

“I don’t see a recession on the horizon,” Lowe said.

“If the last two years has taught us anything, it’s that you can’t rule anything out. But our fundamentals are strong, the position of the household sector is strong, and firms are wanting to hire people at record rates.

“It doesn’t feel like a precursor to a recession.”

Chalmers agreed with the central bank’s statement on a recession, saying the government isn’t “working on the expectation at this point of that risk occurring or eventuating.”

“We have reason to be cautiously optimistic about the future of our economy, but first we have to navigate these difficulties which are right ahead of us,” he said.

The Treasurer said “patience, persistence, and collaboration” is what will get Australia through the current financial state.

“The expectation across the board is that inflation will get worse before it gets better, and that interest rates will get higher as well,” he said.

“This is making life very difficult for Australians already, and for Australian industry, as the prices for goods and services and supplies go through the roof.

“We’ve got a lot going for us in this country and in our economy, but we can’t just pretend away these big challenges that we confront in the next six or twelve months in particular.

“It’s possible to be optimistic about the future of our economy and the future of our country, while also recognising that we have to navigate together a really tricky, really difficult, combination of circumstances.

“What’s necessary here is some patience, some persistence, a lot of collaboration, and working together.”

Following “reputational damage” based on the RBA’s mishandling of the pandemic, Chalmers is pushing a review of the central bank to renew its reputation and ensure independence from politics.