Annual inflation is running at close to four per cent and well outside the Reserve Bank of Australia's two to three per cent target band.
At the same time, the economy is hanging on by a thread after growing by a meagre 0.2 per cent in the June quarter and by an anemic one per cent over the year, despite a step up in government spending.
Governor Michele Bullock last week hosed down expectations of a rate cut later this year, saying she needed to see "results" on the inflation front - leaving the way open for further increases.
She also warned some struggling Australians might have to sell their homes, cut back spending or work longer hours to manage cost of living pressures against a backdrop of a weak economy.
Michele Bullock has acknowledged some Australians who are struggling may have to sell their homes. (Bianca De Marchi/AAP PHOTOS)
While Dr Chalmers says the objectives of the federal government - which manages fiscal policy - and the central bank - which manages monetary policy - are "aligned" the tension between the two arms has come to the fore.
Late last month, he said the 13 rate rises since May 2022, alongside "global uncertainty", were "smashing the economy".
On Sunday, Dr Chalmers was asked about this after former Labor treasurer Wayne Swan last week accused the central bank of "putting economic dogma over rational decision making" and hurting families.
The treasurer said he was making a "factual point" based on the state of the economy but noted Mr Swan, who is the ALP national president, "went further" and had "second guessed" the central bank.
"My focus is on working with Governor Bullock," he told the ABC Insiders program
Households across the country are buckling under the pressure of high interest rates and rents. (Bianca De Marchi/AAP PHOTOS)
"I've got a lot of respect for Governor Bullock.
"Our objectives are actually aligned to get on top of this inflation challenge and we need to do that without ignoring the risks to growth."
Dr Chalmers said he "absolutely" defended the central bank's inflation target.
"Our primary focus, too, is on the fight against inflation," he added.
"If we'd taken the advice of our opponents and our critics and cut harsher and harder at budget time (in terms of government spending) then we'd be in recession right now."
As households across the country buckle under the pressure of high interest rates, Labor would be hopeful that rates would begin to fall ahead of the federal election, which must be held by the end of May.
People are forced to cut back to essentials and work longer hours to manage the household budget. (Flavio Brancaleone/AAP PHOTOS)
The treasurer also appeared to leave the door open to more government spending - which could feature in the mid-year budget update - saying he believed it was "better to avoid a recession rather than clean up after one".
Shadow treasurer Angus Taylor said Labor had failed to fight inflation and the economy should be in a stronger position.
"He's a desperate treasurer who is trying to blame shift and find excuses for his failures," he told Sky News on Sunday.
"They promised ... they were going to fight the cost of living.
"They promised that they were going to bring down mortgages, we've seen no such thing."
Dr Chalmers also confirmed he would become the first federal treasurer to visit China in seven years.
He will arrive in Beijing at the end of September for an economic dialogue with Australia's biggest trading partner.
"We want to make sure that we are maximising this really important economic relationship with our key trading partner," Dr Chalmers said.
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