Every household will receive $150 rebates on their electricity bills in what will be an otherwise low-key fiscal update on Tuesday.
Inflation has come down a long way from its peak at the end of 2022 and the monthly consumer price index (CPI) is expected to fall to 2.4 per cent - below the mid-point of the Reserve Bank's target range - when the Australian Bureau of Statistics reports on Wednesday.
However, much of the fall in headline inflation can be attributed to electricity subsidies provided by federal and state governments.
Commonwealth support is due to run out at the end of June, which the Reserve Bank of Australia predicts will cause the CPI to bounce back up to 3.7 per cent by the end of 2025.
The central bank is less concerned with headline inflation than the trimmed mean, which excludes volatile inputs such as the fluctuations in electricity prices caused by rebates, when deciding on interest rates.
That means the presence of energy bill relief in Treasurer Jim Chalmers' budget should not have a significant bearing on the Reserve Bank's next monetary policy decision on April 1.
It predicts the trimmed mean to slow to 2.7 per cent and stay there despite the headline inflation jump.
NAB thinks the central bank is too pessimistic in its inflation forecast.
"Over time, we think the RBA's comfort will build that the current backdrop is consistent with ongoing progress towards their target, supporting an ongoing but only gradual easing cycle," NAB senior markets analyst Taylor Nugent said.
Inflation has boosted the federal budget's bottom line by pushing income earners into higher tax brackets.
Along with faster-than-expected population growth and stronger-than-expected commodity prices, the deficit for 2024/25 is expected to be slightly less than the $26.9 billion figure forecast in the mid-year update.
But a pre-election budget with more spending promises could add to public demand, "which is already at a record high as a share of GDP", HSBC chief economist Paul Bloxham said.
"The deeper challenge is that productivity growth has been dismal and global downside risks, and the shifting composition of China's growth, means Australia's commodity export income is likely to weaken," he said.
"At the same time, many of the large spending programs in the budget, particularly on health, are growing fast and somewhat locked in.
"This combination leaves the budget in structural deficit."
Australians must head to the polls by May 17.
Investors will digest slight gains on Wall Street after US President Donald Trump flagged there would be flexibility on planned tariffs.
The Dow Jones Industrial Average rose 32.03 points, or 0.08 per cent, to 41,985.35 on Friday, the S&P 500 gained 4.67 points, or 0.08 per cent, to 5,667.56 and the Nasdaq Composite gained 92.43 points, or 0.52 per cent, to 17,784.05.
Australian share futures fell 41 points, or 0.5 per cent, to 7945.
The benchmark S&P/ASX200 closed 13.2 points, or 0.17 per cent, higher on Friday at 7932.1, notching its best weekly performance for the year.
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