RBA Governor Sees Higher Unemployment as Key to Taming Inflation

Reserve Bank governor Michele Bullock said that Australia's unemployment rate may need to edge higher to help bring down inflation, which is currently too high. The labor market remains tight, putting upward pressure on wages and prices.

Bullock stated that the 4.5% jobless rate is at the lower limit of what the RBA thinks will bring down inflation to an acceptable level. She believes that between 4.5% and 5% unemployment would take enough heat out of the labor market, easing pressure on inflation.

Bullock's comments come as money markets and economists expect the central bank to hike interest rates for a fourth time in 2026 in September. This decision is unlikely to be deterred by the upcoming August labor force figures, which are expected to show the unemployment rate holding steady at 4.5%.

The RBA governor also emphasized the need to boost productivity growth, which has only grown at an average of 0.3% per year over the past decade. Bullock sees reviving productivity growth as crucial and views the recent assumption in the Intergenerational Report that it will return to 1.2% within five years as a call to action.