Bullock: RBA increased cash rate, inflation remains too high
Reserve Bank of Australia Governor Michele Bullock told a Senate committee that the RBA has increased the cash rate to combat persistently high inflation. She noted that inflation remains too high despite recent policy tightening.
Inflation's stubborn climb
Inflation picked up notably in the second half of 2025, and to date remains too high.
This increase reflected strong output growth, which had added to existing capacity pressures in the economy and tightness in the labour market.
The conflict in the Middle East has further pushed inflation higher through increased oil and other key commodity prices, with tentative signs of pass-through to other goods and services, including new dwelling costs.
The Monetary Policy Board has increased the cash rate by 75 basis points in total this year to tighten financial conditions and slow growth in demand.
These increases are necessary to contain domestic inflationary pressures and second-round effects from higher oil and commodity prices.
Bullock acknowledged the difficult time for many households facing cost of living pressures, but stressed the importance of bringing inflation under control.
If high inflation persists, it risks becoming embedded in price and wage-setting behavior, particularly given the prolonged period over which underlying inflation has been above 3 percent since the pandemic.
This would necessitate even higher interest rates, and for longer, to return inflation to target, ultimately hurting everyone by reducing purchasing power and disproportionately affecting vulnerable people.
Outlook clouded by global events
Early 2025 saw inflation within the RBA's target, prompting rate cuts.
This reversed in late 2025, with inflation rising due to strong output growth and capacity pressures.
The RBA's May forecasts predict headline inflation peaking above 4.5 percent in the June quarter, remaining above target until mid-2027.
GDP growth is expected to slow, and unemployment to rise, influenced by higher rates and the Middle East conflict.
The outlook is highly uncertain, with adverse scenarios suggesting prolonged conflict could lead to even higher commodity prices, increased inflation, and weaker growth than currently forecast.
No easy path to stability
Governor Bullock firmly reiterates the RBA's commitment to price stability, navigating a complex economic landscape.
Her willingness to consider further rate increases, despite household pressures, signals a central bank prioritizing its long-term mandate.
This underscores that the battle against inflation is ongoing, requiring sustained vigilance.