RBA Expects Inflation to Cool Down Amid Risks Tilted to Upside

Australia's central bank, the Reserve Bank of Australia (RBA), has released its quarterly Statement on Monetary Policy. The RBA expects inflation to cool down a little faster than previously thought, but still sees risks tilted to the upside due to tensions in the Middle East. The bank made modest changes to its forecasts out to 2028, with economic growth expected to be slightly more resilient and inflation a bit cooler.

The RBA's updated forecasts show that unemployment is expected to stabilize around 4.4% before rising to 4.8%. Inflation is expected to ease back to the 2-3% target band in the second half of next year, with consumer price inflation expected to fall from 3.9% in the second quarter to 2.6% by the end of 2027.

The RBA also expects a further slowing in housing credit in the months ahead, which will likely weigh on household consumption and dwelling investments. The bank's liaison with businesses showed that firms are still grappling with elevated cost inflation but increasingly noted that consumer price sensitivity is constraining pass-through to selling prices.