A further rise in interest rates would put Australia’s economic recovery at risk and wipe out the benefits of tax cuts and real wage gains, economists have argued as key decisions loom.

June quarter inflation data, due to be released by the Australian Bureau of Statistics next week, represents a fork in the road for policymakers, according to Deloitte Access Economics partners Stephen Smith and Cathryn Lee.

A benign readout could lead to the Reserve Bank board holding rates steady again when it meets in August, but an upside inflation surprise could force its hand to lift rates again, they said in their quarterly Business Outlook report.

A return to monetary tightening would be misguided, the pair argued in the report.

“Any further increase in interest rates cannot be justified, and would just pull the rug out from under a cautious economic recovery,” Smith said.

“Should rates stay on hold, the narrative of a strengthening Australian economy through the second half of 2024 would remain intact.”

Smith said an interest rates rise would “further crush household and business confidence and wipe out the benefits of tax cuts and real wage gains in the second half of 2024”.

The report acknowledges it was not a view wholly shared by the Australian economic commentariat.

Judo Bank’s Warren Hogan, Coolabah Capital’s Christopher Joye and the ANU’s Stephen Hamilton have all argued the RBA has undercooked the cash rate, pointing to sticky inflation and persistently high employment.

At 4%, the unemployment rate remains well below pre-Covid levels, which would suggest a relatively robust economy.

But Smith said low unemployment was not as helpful an indicator as it seemed.

The robust jobs figures were largely due to employment growth in non-market sectors, such as health and disability services, which were not typically associated with a booming economy.

Smith pointed to sluggish GDP growth as further proof the economy was not overheating.

Inflation would not be curtailed by a further rise in interest rates, which worked by slowing excess demand, he said.

He expected the economy to grow by just 1% in 2024 and argued other factors were contributing to inflation, such as a housing shortage pushing up rents.

“None of this sort of inflation will be tamed by higher interest rates,” Smith said.

There are plenty of economists who agree the case for rate rises has passed.

All of the big four banks predict the next rate move will be downward, although later than initially forecast, while State Street Global Advisors economist Krishna Bhimavarapu warned another interest rate rise could plunge already feeble economic growth into recession territory.

“We still think a rate hike will be a policy mistake, as the economy is at a tipping point, where the unemployment rate could rise beyond their comfort level,” he said.