The Albanese government will consider further cost-of-living relief alongside planned spending cuts in the upcoming mid-year budget update.

News24.com.au can reveal targeted relief measures are being discussed as Treasurer Jim Chalmers prepares the economic statement for December.

It’s understood that any new assistance will have to pass the critical test of not adding further to inflation.

It comes amid growing calls for drastic action to rein in government spending, following five interest rate hikes this year.

Labor’s proposed approach will allow it to offer households relief from rising costs while attempting to convince the RBA it is taking action to reduce demand in the economy.

The cheaper medicines policy is among the examples of cost-of-living assistance that could meet the government’s requirement for measures to be non-inflationary.

The consideration of further assistance comes as ministers face growing pressure to identify savings.

There have so far been multiple meetings of the government’s Expenditure Review Committee, as it examines spending ahead of the December statement.

Ministers have been challenged to find savings within their portfolios as the government attempts to balance competing demands for household relief and tighter fiscal policy.

But Finance Minister Katy Gallagher has previously refused to guarantee the government will deliver net savings in the mid-year update.

She warned that growing pressures on the federal budget were making the task increasingly difficult.

Ms Gallagher said she did not want to pre-empt the Expenditure Review Committee process, despite the effort being put into finding savings.

“I can’t, I don’t want to pre-empt the (Expenditure Review Committee) process,” Ms Gallagher said last week.

“We will go through that … but there is enormous effort being placed, particularly by Jim and myself on the savings side.

“We are doing a lot of work on the savings side but I can’t get ahead of decisions that haven’t been made yet.”

The Finance Minister also rejected suggestions there was tension inside cabinet over the push to rein in spending.

The Treasurer also refused to commit to net savings as annual inflation hovers above 4 per cent, and outside the RBA’s 2-3 per cent target range.

RBA Governor Michele Bullock has stressed Australia’s monetary policy tightening is aimed at addressing domestic capacity pressures.

The government has also faced questions over the extent to which international events, including the US-Iran conflict, are driving inflation.

The impact of the conflict has been felt overseas, with the Bank of England raising interest rates from 3.75 to 4 per cent on Friday, its first increase in three years.

Governor Andrew Bailey warned further increases could follow if the Middle East conflict was not resolved.

“Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes,” Mr Bailey said.

“But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase.”

However, Ms Bullock has made clear Australia’s latest rate increase was largely driven by domestic spending pressures rather than global oil prices.

The Prime Minister has previously acknowledged the RBA only has a single “blunt instrument” in the fight against inflation.

Ahead of the budget update, Mr Albanese has signalled a willingness to make difficult decisions on spending, while accusing the Coalition of blocking proposed savings.

“We were always going to be fiscally responsible because my government is a fiscally responsible government, and we will take appropriate action,” he said last week.

“We won’t rip money out of health or schools. What we will do is take responsible action and take hard decisions. We’ve shown we’ve been prepared to do that.”