Inflation in Australia has dropped to a three-year low, with the headline consumer price index (CPI) rising just 2.1% in October. However, Reserve Bank of Australia (RBA) Governor Michele Bullock has reiterated that the central bank will not cut the cash rate until inflation consistently returns to the target range of 2–3%.
Focus on Sustained Inflation Control
While the headline CPI aligns with the RBA’s target range, Bullock emphasized the importance of the trimmed mean inflation rate, which excludes volatile components. This measure stood at 3.5% in October, exceeding the RBA’s target.
“The word sustainability is important, because it recognizes that we look through temporary factors that influence headline inflation rates from time to time,” Bullock said during the Committee for Economic Development of Australia annual dinner.
Temporary Measures and Underlying Inflation
Bullock noted that falling headline inflation has been aided by government policies, such as the $3.5 billion Energy Bill Relief Fund, which provides rebates on electricity bills for households and small businesses. However, she stressed that these measures are temporary and do not address the underlying inflationary pressures.
“Our forecasts published in the November Statement on Monetary Policy suggest that a sustainable return to target will occur in 2026,” she added.
Elevated Cash Rate and Economic Demand
The RBA’s cash rate currently sits at 4.35%, a level Bullock described as “restrictive.” This stance will remain until the board is confident that inflation is sustainably on track to return within the target range.
“Elevated inflation indicates that the level of demand in the economy is above the ability of the economy to supply the goods and services demanded,” Bullock explained.
However, she noted that the gap between supply and demand is narrowing, with subdued household consumption contributing to slower demand growth.
No Immediate Cuts Despite International Trends
Bullock highlighted that the RBA will not follow international peers in easing policy settings, despite global pressures. She emphasized that while other central banks are becoming more confident in inflation control, most are only removing some restrictiveness, not fully shifting their policies.
Expert Predictions: Rate Cuts Unlikely Before May 2025
CBA’s head of economics, Gareth Aird, pointed out that the RBA’s November meeting minutes suggest more than one strong quarterly CPI result will be required before any rate cuts are considered.
“If the governor indeed needs to see more than one good quarter, due to the timing of the ABS announcements, mortgage holders can all but rule out a rate cut until May 2025,” Aird said.
This cautious approach, Aird argued, contrasts with the RBA’s usual stance that policy decisions are flexible and responsive to incoming data.
Outlook for Australia’s Economy
Bullock anticipates a slight improvement in GDP growth and household consumption in the coming year, but acknowledged risks in both directions. She emphasized that the RBA remains committed to ensuring inflation returns sustainably to the target range, balancing restrictive policy with economic growth considerations.
