RBA Governor Michele Bullock has emphasized ongoing inflation risks in Australia, despite the central bank raising the cash rate by 75 basis points this year in an effort to return inflation to target levels [1]. Bullock testified that while inflation had briefly fallen into the target band in early 2025, it re-accelerated in the second half of the year due to factors such as stronger economic growth, a tight labor market, and higher oil prices, which collectively pushed costs higher [1].
Bullock further warned that the ongoing Middle East conflict could contribute to additional inflationary pressures and modestly weigh on economic growth [1]. She projected that headline inflation may peak above 4.5% in the June quarter, with underlying inflation expected to remain above target until mid-2027 [1]. The RBA's tighter policy stance is already having an effect, as evidenced by easing housing market conditions [1].
On a positive note, Australia recorded a sharp improvement in its international trade in goods balance for April, posting a surplus of AU$1.791 billion compared to a deficit of AU$1.024 billion in March [1]. However, the overall tone remains cautious due to persistent inflationary risks and external uncertainties.
CONCLUSION
The RBA remains vigilant as inflation risks persist despite recent rate hikes, with headline inflation expected to peak above 4.5% and underlying pressures likely to remain elevated until mid-2027. While trade data showed improvement, the central bank is cautious about the impact of global events and domestic cost pressures on the economic outlook.