RBA Forecasts Gradual Inflation Decline Until Mid-2027
The Reserve Bank of Australia (RBA) has forecasted a gradual decline in underlying inflation, staying above 3% until mid-2027 before easing to 2.5% by early 2028. This outlook, presented in the August Statement on Monetary Policy, indicates a slow fade rather than a sharp drop. The trimmed mean inflation measure, which excludes extreme price movements, is expected to remain above the 2-3% target range for most of the next year before settling at the midpoint in early 2028.
Recent data shows underlying inflation has been around 3.5% for the past six months, while headline inflation was 4.0% in August. Governor Michele Bullock has emphasized that inflation remains too high and stressed the importance of preventing high inflation expectations from becoming embedded in price-setting decisions. The RBA's caution is rooted in the significant drop in inflation from its peak of 7.9% at the end of 2022 to within the target range in 2024 and 2025, followed by a rise back above the range.
The August forecast has been tested by higher energy prices due to the conflict in the Middle East and a fourth cash rate increase in September. The RBA had assumed less than one full cash rate increase by the end of 2026, but the actual increase was higher. Other factors, such as rapid growth in global prices for technology-related goods and elevated inflation expectations, also play a role. The updated forecast will be published on 3 November, providing clarity on how these changes may affect the timeline for underlying inflation.
The slow fade in inflation has practical implications, as it implies prices will continue to rise faster than the target range for some time. The RBA remains focused on bringing inflation sustainably back to target, including the possibility of further cash rate increases. Key dates to watch include the release of the minutes from the September meeting on 13 October, the CPI update on 28 October, and the November Statement on Monetary Policy on 3 November.