According to the RBA, inflation has recently picked up. While inflation has fallen substantially since its peak in 2022—helped by higher interest rates bringing demand and supply closer to balance—it has risen again in recent months. The RBA noted that trimmed mean inflation was 1.0 per cent in the September quarter and 3.0 per cent over the year, up from 2.7 per cent in the June quarter. This result was materially higher than expected in the August Statement on Monetary Policy. Headline inflation also increased to 3.2 per cent over the year in the September quarter, largely due to the cessation of electricity rebates in several states.

The RBA indicated that part of the increase in underlying inflation was due to temporary factors. Its latest forecasts, released in the November Statement on Monetary Policy and based on a technical assumption of one more rate cut in 2026, suggest underlying inflation will rise above 3 per cent in the coming quarters before easing to around 2.6 per cent in 2027.

Economic Conditions and Outlook

The RBA observed that domestic economic activity is recovering, although the outlook remains uncertain. Consumption data indicate that the pick-up in private demand seen in the June quarter has continued. The housing market is strengthening, with rising prices and renewed growth in dwelling construction costs—a sign that recent interest rate reductions are having an effect. Credit conditions remain favourable for both households and businesses.

Labour market indicators continue to show some tightness despite recent easing. Employment growth has slowed slightly more than expected, and the unemployment rate rose to 4.5 per cent in September from 4.3 per cent in August. Nevertheless, job vacancies remain high, and business surveys suggest many firms are still finding it difficult to source labour. Although wages growth has eased from its peak, productivity growth has been weak and unit labour costs remain elevated.

The RBA highlighted ongoing uncertainties affecting both domestic and global conditions. Domestically, stronger-than-expected private demand could place further pressure on capacity and enable businesses to pass on higher costs. However, this momentum might not persist. Globally, elevated uncertainty and geopolitical risks continue to pose challenges, though near-term forecasts for world growth have been revised upward by many forecasters.

Monetary Policy Considerations

The RBA acknowledged uncertainties around the current stance of monetary policy, the timing of past rate changes, and the balance between aggregate demand and supply. These factors present risks in both directions for inflation and employment outcomes.

The RBA reaffirmed its focus on maintaining price stability and full employment. With inflationary pressures persisting and demand recovering, the decision was made to keep the cash rate steady. The RBA noted that while financial conditions have eased since the start of the year, it will take time to see the full impact of earlier rate cuts. Given recent evidence of more persistent inflation, the RBA stated that it remains cautious and will continue to reassess its outlook as new data emerge.

The RBA emphasised that it will closely monitor developments in global and domestic economic conditions, inflation trends, and the labour market to guide future decisions. It remains committed to achieving its mandate of price stability and full employment.

Source: Statement by the Monetary Policy Board: Monetary Policy Decision