Economists are warning Federal Government measures to ease cost-of-living pressures could have the reverse effect and drive up prices.

The Government has committed to a $14.6 billion cost-of-living package in the Budget which it hopes will ease inflation, but economists fear any subsidies offered will effectively boost disposable income and drive up demand and inflation over the medium term.

Economist, Chris Richardson, says even though the measures would be offered as things like energy subsidies to reduce household bills and not cash payments, it will still increase household spending.

“It doesn’t matter the point at which you’ve saved money. The key point is you’ve saved money, and you then spend it,” he says.

Australia’s inflation rate sits at 7% and is not expected to return to the favoured 2% or 3% until mid-2025.

EY Oceania chief economist Cherelle Murphy says fiscal policy is already too stimulatory.

“Adding additional net spending just makes that worse, whatever its form,” she says.