Gross domestic product increased 0.5 per cent in the December quarter, the smallest quarterly gain in more than a year, dragging the annual growth rate down to 2.7 per cent from 5.9 per cent the previous quarter.

Per capita GDP, which accounts for increases in output driven by population growth, was just 0.8 per cent in the 12 months to December, according to the Australian Bureau of Statistics.

Treasurer Jim Chalmers said that although the economy was performing better than all of the major advanced economies, the figures showed the "extreme pressure" households were under.

"These numbers reflect the reality of rising interest rates and capture the impact of the cost-of-living pressures affecting Australians," Dr Chalmers said.

Household spending growth slowed to 0.3 per cent in the December quarter, the weakest quarterly result since September 2021 as purchases of discretionary items slumped.

While people continued to spend up on holidays and eating out, they cut back on clothes, household goods and furnishings, while expenditure on home renovations also declined.

Reflecting the pressure on family budgets, the household savings ratio plummeted from 7.1 per cent to 4.5 per cent, its lowest level in more than five years.

The GDP results were below market expectations and could increase the Reserve Bank of Australia's confidence that nine successive interest rate increases are working to dampen activity and reduce price pressures.

But economists think the RBA will nonetheless push ahead with more rate hikes.

Market Economics managing director Stephen Koukoulas said the central bank had already flagged at least two more rate hikes were likely and it would shock the markets if they did not deliver.

Mr Koukoulas expects 0.25 of a percentage point increases to the official cash rate this month and in April but the tone of the rates announcements might become "more cautious", he said.

While accepting that households were feeling the pinch, Dr Chalmers said there were hopeful signs that inflation had peaked and may be easing.

READ MORE:

KPMG chief economist Brendan Rynne said the combination of slowing growth, decelerating inflation and softer-than-expected wage gains, "the RBA will feel that the peak of the tightening cycle is not too far away".

"The CPI data will provide some comfort to the RBA that it is on track to bring inflation back into the target range without driving the economy into recession," Dr Rynne said.

While forecasting two more rate hikes, KPMG economist said the "end of the rate hikes now appears to be in sight".

The ABS's monthly consumer price index report showed headline inflation in January was up 7.4 per cent from a year earlier, though this was down from 8.4 per cent the previous month.

"This is more evidence that inflation is likely to have peaked in our economy and the worst, when it comes to inflation, is behind us," the treasurer said.

But shadow treasurer Angus Taylor said the ABS data showed that cost-of-living pressures were getting worse and accused the government of raising taxes rather than tackling inflation.

"Energy bills have soared, mortgages payments are rising every month, rents have increased, grocery costs are rising by the day and Labor's promised real wage increase hasn't eventuated," Mr Taylor said.

"This is a government that spent an election campaign promising they would act to address the rising cost of living and yet now, it's the last thing they want to talk about."

Commonwealth Bank economist Stephen Wu said that although inflation was still high, it had slowed more sharply than expected and was "moving in the right direction".

"The data is beginning to paint a picture of weakening consumer demand as the impact of rate hikes are beginning to more fully flow through," Mr Wu said. "That is showing up in goods inflation now, but over time we see that being a drag on services inflation."