CommBank's household spending indicator rose 0.7% in August in seasonally adjusted terms.

A surge in international students saw education spending go up, high fuel prices meant spending on transport increased, while there was a jump in recreation spending which was attributed to the FIFA World Cup.

The annual growth rate however is still low, household spending 2.3% higher than in August 2022, when spending was 18.7% higher than August '21.

Commbank economists Stephen Halmarick and Belinda Allen say the slowdown in spending reflects 400 basis points' worth of cash rate increases.

"Monetary policy is now restrictive and financial conditions will continue to tighten in the months ahead because of the lagged effect of the interest rate hikes and the fixed rate mortgage refinancing task," the pair said.

However, the slight uptick in August means spending appears to be more resilient compared to the June quarter, which CBA economists say will be important to monitor in the months ahead.

The tight labour market is also something ex RBA Governor Phil Lowe highlighted as a potential factor working against inflation coming down, and it continues to be the case with the ABS revealing today the unemployment rate remained at 3.7% in August.

For Shane Oliver though, Chief Economist at AMP, there is still enough evidence the economy is slowing sufficiently, and the RBA are unlikely to feel further rate increases are necessary.

"Rate hikes impact the economy with a lag of a year or more," Mr Oliver said.

"The lag has likely been lengthened by savings buffers built up in the pandemic, the reopening boost, more than normal [amount of] home borrowers locking in at 2% or so fixed mortgage rates in the pandemic and the highly competitive mortgage market which has meant that actual mortgage rates paid on outstanding mortgages have gone up by less than the cash rate.

"However, these protections are now wearing off."

He suggested housing debt interest payments as a share of household disposable income could reach record highs in the coming months.

Upside risks remain

While domestic demand looks to be cooling, economists are also looking abroad at potential inflationary pressures that could change these predictions.

The US economy also looks to be softening: although the CPI indicator rose 0.6% in August, the biggest jump since June 2022, this was mostly due to fluctuating fuel and food prices.

Core CPI only rose 0.3%, the lowest since September 2021.

Westpac expects the US Fed to begin cutting rates in March 2024, but has identified structural factors that could see inflation return strong in the future.

As the world shakes off pandemic related disruptions to supply chains, the US is expected to re-shore some of its global production chains, which could see goods inflation lift again.

Limited commodity supply and the scale of investment needed to support global green transition targets could also mean inflation starts to creep back up again.

This has prompted Westpac to revise its forecast for the US Federal Reserve rate.

Previously, Westpac expected the Fed's rate to be cut to 2.625% by the end of 2025, but now only expect it to drop to 3.375%.

This is likely to mean the USD stays stronger for longer, which in turn could hurt the Aussie dollar, since investors will opt for US interest yielding products over those from Australia.

A weak dollar can mean extra demand for Australian exports, as they become relatively cheaper compared to other countries, which could work against efforts to bring domestic inflation down to target levels.

A devalued local currency also makes imports more expensive, potentially driving up inflation. 

There could also be a flow on effect if the world's largest economy is booming, boosting demand for goods and services around the world.