Michele Bullock: The costs of high inflation

Keynote address by Ms Michele Bullock, Governor of the Reserve Bank of Australia, to the Anika Foundation Fundraising Lunch, Sydney, 5 September 2024. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

I am very pleased to be here at the Anika Foundation fundraising luncheon. It is a tradition for the Governor of the Reserve Bank to give this annual address and I am very happy to continue it. As you know, the Foundation supports research into adolescent depression and suicide, a widespread issue and I suspect one that many of us in this room have been touched by. I am therefore very pleased to be speaking at an event in support of such an important cause.

The monetary policy environment

I want to start by explaining the Board's most recent policy decision and summarising our central outlook for the Australian economy as set out in our August Statement on Monetary Policy. To a large extent, I will be reinforcing many of the points I made following the August Board meeting.

As I'm sure you know, at its meeting in early August, the Board decided to leave the cash rate unchanged at 4.35 per cent. While inflation has fallen substantially since its peak, it is still some way above the midpoint of the 2–3 per cent target range, with underlying inflation – as measured by the trimmed mean – at 3.9 per cent in June.

The Board is trying to bring inflation back to target in a reasonable timeframe while preserving as many of the gains in the labour market that we have seen in the past few years as possible. This is the so-called narrow path.

In our central August forecast, underlying inflation is expected to be back in the target range by the end of next year, and to approach the midpoint in 2026 (Graph 1). That is a slightly slower return to target than our forecast in May. Meanwhile, the labour market remains relatively tight but is expected to continue to ease gradually over the next couple of years.