In a speech today, RBA Governor Michele Bullock highlighted Australia’s “unusually tight” labor market. She noted that the combination of labor market pressures and demand exceeding supply across the economy would likely mean it will “take a little longer for inflation to settle at target” in Australia.
RBA staff projections anticipate inflation returning sustainably to the midpoint of the 2-3% target range, at 2.5%, by late 2026. This outlook assumes that restrictive financial conditions will gradually balance the economy and the labor market. Governor Bullock remarked, “We still think we are on the narrow path,” referencing the delicate balance required to manage inflation without derailing economic growth.
The forecast is based on market-implied cash rate expectations from the November Statement on Monetary Policy, which suggested the rate would remain steady over the near term. However, Bullock clarified, “This is not the Board’s forecast for interest rates,” but rather a “conditioning assumption” consistent with RBA’s inflation timeline.
Bullock also acknowledged uncertainties, emphasizing that the inflation forecast includes “substantial bands of error” and is subject to change as new data emerges.
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