Life in the slow lane now post-pandemic party is over …

RBA governor Philip Lowe. Picture: NCA NewsWire / Gary Ramage

The post-pandemic consumer party is over.

Australia is shifting down several gears, as higher interest rates squeeze incomes, spending, employment and prices.

Life in the slow lane isn’t the nation’s natural place, but it is where the Reserve Bank needs us to be right now to rid us of our No. 1 problem: high and persistent inflation.

There’s more harsh medicine to swallow, but hopefully not too much more.

At an annual 2.7 per cent growth in gross domestic product in the December quarter, we are doing better than our rich-country peers, who are meandering along at 1.1 per cent across the broader OECD and 1 per cent for the G7 powerhouses.

We roared out of Covid lockdowns and pumped the cash we had hoarded into travel and retail, but markedly higher borrowing costs are taking their toll on consumer demand.

That will take some of the heat out of inflation, which is on a quick slide to more comfortable levels, for households and the central bank, over coming years.

It’s likely the worst of the headline inflation trauma is behind us, but the RBA will want to be sure-sure.

Wednesday’s national accounts show discretionary spending is easing off. To maintain lifestyle as mortgage costs rise, families are reducing savings to below pre-pandemic levels, although some may even be drawing down on the buffers built during the pandemic.

Economists believe the slowdown has come earlier than expected, which could see the RBA hold fire on its cash rate target sooner than thought.

Even with the return of foreign students, tourists and temporary workers, activity is going to moderate; the economy will keep growing, but not as fast as the population.

CBA economists expect a “per capita recession” this year.

The near five-decade low in unemployment is behind us and it’s likely the jobless rate will push up to around 4.5 per cent next year. That’s still a robust labour market, justifiably a soft landing, and income growth should by then outstrip inflation.

Yet GDP growth of 1.5 per cent this year and next, as RBA and Treasury forecasters have it, will feel for many Australians like we’re going backwards, even if we avoid the two quarters of negative growth that is the shorthand for a recession.

In politics and polling, the cost-of-living crisis can be often blown out of proportion, for all sorts of reasons.

Yet many indebted households are going to be walloped in coming months, especially those that have loans rolling over from low-cost fixed mortgages to variable rates.

There’s not a lot the Albanese government can, or should, do in the May budget, other than to help the most vulnerable.

Jim Chalmers is already borrowing large in coming years to keep the country running.

The budget is taking on more spending because Labor wants to do more in government and because of commitments from previous tenants – including pandemic debt and social programs from the last time it was in office.

We need to be better prepared for a crisis-laden world.

We’ll be better off if policymakers hold their nerve and leaders do smart things that “make the pie larger” as our top econocrats keep telling their masters, not simply over-saucing it and passing on the bill to our children.

Things will get worse for families, but the cycle will turn.