Australia's inflation levels remain a critical focus for the Reserve Bank of Australia (RBA), with Governor Michele Bullock reaffirming that interest-rate cuts are not on the horizon.
Speaking in Sydney, Bullock highlighted that core inflation, which stood at 3.5% last quarter, is unlikely to reach a sustainable target until 2026.
“The word ‘sustainably’ is important because it recognises that we need to look through temporary factors that influence the headline inflation rate from time to time,” Bullock stated.
The RBA's stance diverges from central banks like the U.S. Federal Reserve and the Reserve Bank of New Zealand, which have already begun easing monetary policy. Bullock attributed the RBA's measured approach to maintaining employment gains and facilitating a soft economic landing while addressing inflation.
The central bank's forecasts suggest its trimmed mean inflation gauge will return to the 2-3% target range by late 2025, achieving the midpoint by late 2026. Meanwhile, Australia’s labour market remains robust, with unemployment at 4.1%.
“Given the tightness in Australia’s labour market, along with our assessment that the level of demand still exceeds supply in the broader economy, we expect it will take a little longer for inflation to settle at target,” Bullock remarked.
The RBA’s next meeting, scheduled for 9-10 December, is widely expected to maintain the cash rate at 4.35%, a 13-year high. While financial markets predict rate cuts starting in May 2025, economists generally anticipate an earlier easing in February.
Bullock reiterated the need for caution, stating, “Monetary policy settings will nevertheless need to remain restrictive until the Reserve Bank Board is confident that inflation is on track to return sustainably within the target range and approach its midpoint of 2.5%.” She also underscored the importance of flexibility, citing global uncertainties such as geopolitical tensions and market volatility as factors influencing policy decisions.
Recent economic data supports the RBA's stance, with improving consumer and business sentiment, a resilient labour market, and easing wage pressures.