High inflation and low unemployment puts rate hike on the cards, Shadow RBA Board says

The nine members of the Australian National University's RBA Shadow Board think there is a 66 per cent chance that a 0.25 of a percentage point increase of the cash rate to 3.85 per cent is the correct call in a view at odds with the markets, who expect the Reserve Bank to keep interest rates on hold for a second consecutive month.

The assessment has come as the federal government puts the finishing touches to its second budget, to be released on May 9, which is being framed against a backdrop of spiraling living costs.

Treasurer Jim Chalmers has flagged the budget will include measures to relieve some of the pressure on households and small businesses but it is under pressure to ensure any assistance does not add to inflation.

The Reserve Bank board will discuss its monetary policy setting amid tentative signs that the nation's very tight labour market is loosening.

The number of vacancies advertised dropped marginally last month following a revised 2.7 per cent fall in March to be almost 8 per cent below the peak reached last September, according to the ANZ-Indeed Australian Job Ads index.

The result suggests demand for workers is easing as high interest rates bear down on the economy by increasing borrowing costs and slowing spending and investment.

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But ANZ senior economist Catherine Birch warned that the jobs market was still under great pressure.

"The level [of the index] remains very high, signalling significant unfilled labour demand, and is consistent with solid employment gains," Ms Birch said.

Official figures show the unemployment rate held steady at 3.5 per cent in March despite a huge influx of migrants early this year - a result Indeed senior economist Callum Pickering said highlighted how strong was the need for more staff.

"Labour demand remains robust nationally, with particular strength [in] graduate recruitment," Mr Pickering said, noting that job ads for university graduates were 24 per cent higher in the March quarter compared with a year earlier.

The update on the labour market follows the release of Australian Bureau of Statistics figures last week showing that headline inflation eased to 7 per cent in the March quarter (down from 7.8 per cent late last year) but remained well above the RBA's 2 to 3 per cent target band.

The central bank's preferred inflation measure, the trimmed mean, edged lower to 6.6 per cent, encouraging some economists to expect interest rates will be held steady at Tuesday's board meeting.

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The minutes of the April meeting show that the decision to pause on a further rate hike last month was close run and governor Philip Lowe indicated tighter monetary policy was likely to be needed.

Shadow RBA Board member and Sydney University economist Mariano Kulish said the central bank should lift the cash rate to 3.85 per cent on Tuesday and flag the need for further increases "until there is more substantial evidence that inflation has turned the corner".

Professor Kulish said the real cash rate (adjusted for inflation) was near historic lows. This, combined with the low unemployment rate, suggested monetary policy was still expansionary.

"More needs to be done to put monetary policy on a more contractionary stance ... in order to ensure inflation returns to target faster than by 2025," he said.

Dr Lowe will provide a detailed update on the central bank's assessment of the economy and monetary policy in a speech in Perth on Tuesday night.