Reserve Bank of Australia (RBA) governor Michele Bullock has warned that monetary policy must remain restrictive until inflation sustainably returns to the central bank’s 2-3% target range, which she suspects is unlikely until late 2026.
Speaking at the Committee for Economic Development of Australia (CEDA) annual dinner last night, Bullock explained that the RBA's forecast was conditioned on the cash rate staying at its current level in the near term.
“Despite the decline, there is still some way to go to return inflation sustainably within our 2-3% target range,” she said.
The RBA’s preferred measure of inflation, the trimmed mean, has stayed above the middle of the target range since late 2021.
While headline inflation figures recently fell to 2.1% in the year to October, Bullock noted that temporary factors, including electricity rebates and lower fuel prices, have distorted the results.
Chalmers’ has repeatedly emphasised the reduction of headline inflation figures.
Despite Chalmers’ emphasis on headline inflation’s recent improvement, Bullock reiterated: “The best way to do this is to look at underlying inflation. The measure we typically look at for this is trimmed mean inflation, and by this measure, inflation was still too high.
“While these temporary factors have undoubtedly helped many Australians, our approach is to look through them to some extent to better understand where inflation will settle in the medium term.”
Bullock’s comments came as Treasurer Jim Chalmers celebrated the passage of the RBA reform bill through the Senate, a key milestone in modernising the central bank's governance.
The reforms will establish a dual-board structure, separating monetary policy decisions from institutional oversight, following last year’s comprehensive review.