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RBA’s Bullock Says Inflation Too High to Consider Rate Cuts
(Bloomberg) -- Australia’s core inflation is “too high” to consider interest-rate cuts in the near term, Reserve Bank Governor Michele Bullock said, reiterating that there’s still some way to go before prices return sustainably to target.
“The word ‘sustainably’ is important because it recognizes that we need to look through temporary factors that influence the headline inflation rate,” Bullock said Thursday in a speech in Sydney. She pointed out that forecasts show a “sustainable return” of underlying inflation to target occurring in 2026, after it came in at 3.5% last quarter.
The governor’s comments reinforce the RBA’s outlier status in the developed world. Her suggestion that Australian borrowers shouldn’t expect an easing in the near term come at a time when the Federal Reserve, the Reserve Bank of New Zealand, Bank of Korea and others are already on rate reduction paths.
The RBA’s key difference with counterparts, Bullock said, is that its policy settings are comparatively less restrictive. That’s due to its desire to preserve job gains and engineer a soft landing while bringing down prices.
The central bank’s latest forecasts published this month show its preferred trimmed mean gauge of inflation will return to the 2-3% target at the end of 2025 and hit the 2.5% midpoint in late 2026. The governor also noted that Australia’s labor market has proved resilient with unemployment at a low 4.1%.
“Given the tightness in Australia’s labor market, along with our assessment that the level of demand still exceeds supply in the broader economy, we expect it will take a little longer for inflation to settle at target,” Bullock said.
The RBA next meets on Dec. 9-10, when it’s widely expected to leave the cash rate at a 13-year high of 4.35%. Money market pricing implies rate reductions will begin in May 2025, though most economists are still penciling in a February start to easing.
Asked after her speech about the timing of policy easing, Bullock pointed out that the RBA’s central forecast — even though it has a very large error band — is that by the end of 2025 core inflation will be back below 3%.
“But we don’t think it’s good enough just to be below 3%,” she said, adding confidence in the movement is key. “Provided we continue along that trajectory then we will be in a position at some point to consider whether its appropriate to cut rates.”
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Queried about the RBA’s repeated comment about not ruling anything in or out on policy, Bullock stood by that approach. She pointed out that the world is very volatile at the moment, even though inflation in Australia has been gradually coming down.
“If the data that we’re seeing and the information we’re getting from our liaison and so on suggests that inflation is picking up again, it’s not going to follow that trajectory, it’s going in another direction, then that would be a very big red flag for us,” she said.
Since the RBA stood pat at this month’s meeting, data has pointed to a resilient economy with strengthening consumer and business sentiment, easing wage pressures and a still-strong labor market. A monthly gauge of headline inflation this week came in below expectations though core prices accelerated to 3.5%, reinforcing Bullock’s point.
Elsewhere, the increased likelihood of trade conflicts under President-elect Donald Trump together with fighting in the Middle East and Ukraine are adding to market jitters. Bullock acknowledged the “ongoing conflicts” around the world and an “ever-changing geopolitical landscape,” without delving into them.
“We are ready to meet these challenges head-on,” she said.
(Adds governor’s comments from Q&A in eighth to 11th paragraphs.)