Australia's recently-elected Labor government took a scalpel to the country's economic growth forecasts on Thursday, warning soaring inflation and higher interest rates represented a once-in-a-generation challenge.

Speaking in parliament, Treasurer Jim Chalmers cut forecast economic growth by half a percentage point for this fiscal year and next. He predicted inflation would now peak at 7.35%, rather than the 4.25% forecast by the previous government back in March.

"The economic picture I have set out today represents a convergence of challenges, the kind of which comes around once-in-a-generation," said Chalmers, who won office in a May election.

Treasury now sees the economy growing 3% in the year to end June 2023, and a sub-par 2% in 2023/24. Unemployment is expected to edge up from the current 48-year low of 3.5%, to 3.75% by the middle of next year and to 4% by mid-2024.

Wage growth was expected to pick up smartly to 3.75% over the coming year, from the current sluggish 2.4% pace.

That would still lag behind inflation which was forecast to run at 5.5% through 2022/23, before cooling to 2.75% in 2023/24.

"Inflation will unwind again, but not in an instant," said Chalmers. Consumer prices surged 6.1% in the year to June, the fastest pace in 21 years.

Interest rates have also been rising rapidly from record lows put in place during the COVID-19 pandemic, with the Reserve Bank of Australia (RBA) expected to deliver a fourth hike in as many months at a meeting next week.

The budget deficit, however, was set to be far lower than forecast thanks in large part to sky-high prices for many of Australia's major commodity exports.

Data on Thursday showed export prices jumped 10.1% in the June quarter, with coal alone surging 31% as the Russia-Ukraine conflict and bad weather disrupted global supplies.

That left export prices up almost 39% for the year to June, delivering a huge windfall to mining profits and the government's tax take.

Chalmers is due to release his first budget in October. (Reporting by Wayne Cole; Editing by Jacqueline Wong and Richard Pullin)