Treasurer Jim Chalmers has downplayed expectations of cost of living relief in next week’s federal budget, warning some measures could push up already high inflation.

Dr Chalmers noted the cost of living could increase even further due to devastating floods in NSW, Victoria and Tasmania and lead to increased grocery prices.

Preliminary talks have already been held with Treasury about the economic impact of the floods.

“There will be a substantial impact on the cost of living, there will be a substantial impact on the budget and there’s no pretending otherwise,” Dr Chalmers told the Nine Network on Tuesday,

“We don’t yet know what the full impact will be on the cost of living, we don’t yet know how many billions of dollars this flood and its recovery will cost.”

Ahead of next Tuesday’s federal budget – his first as treasurer – Dr Chalmers said he did not want any cost of living measures to be counterproductive.

Dr Chalmers said an important balance needed to be struck.

“What we don’t want to do, and we’ve seen this overseas, is provide cost of living relief in a way that just creates more inflation and pushes interest rates up higher than they would otherwise be,” he said.

“It’s not an easy balance to strike, but we’re trying to strike it for the right economic reasons.”

The treasurer said lessons from the UK and Prime Minister Liz Truss’s unfunded tax cuts, which had led to market turmoil, had been heeded ahead of the federal budget.

“The UK government itself is recognising that perhaps they got this balance wrong and they’re trying to recalibrate their settings,” he said.

“That is an important lesson for all of us. What we’ve tried to do is make sure that the cost of living relief that we give doesn’t make the job of the Reserve Bank harder.”

– AAP