Bullock warns inflation risks may require further rate hikes

Headline inflation remained well above target at 4 per cent in May, driven by energy price volatility stemming from the Middle East conflict and persistent domestic capacity pressures.

RBA Governor Michele Bullock noted that underlying inflation continues to evolve broadly as expected but remains too high.

While consumer spending and demand growth are moderating in line with May forecasts, non-labour cost pressures are increasing as firms pass on higher input costs.

The housing market has eased more than anticipated, though established price declines remain modest and negative equity affects less than 1 per cent of borrowers, keeping financial stability risks contained.

Comparing current conditions to the turbulent oil shocks of the 1970s, Bullock highlighted that the Australian economy is structurally more resilient, supported by credible inflation-targeting frameworks and lower energy dependency.

However, repeated adverse supply shocks combined with persistently weak productivity growth continue to constrain potential supply and reinforce inflationary pressures.

Navigating these compounding supply shocks requires maintaining public confidence in price stability.