RBA Sees Inflation Cooling Faster Amid Tight Financial Conditions

The Reserve Bank of Australia (RBA) has revised its inflation forecast, expecting cost pressures to cool slightly faster than initially thought. The central bank's economics unit updated forecasts that suggest economic growth will be a little more resilient and inflation will ease back to the 2-3% target band in the second half of next year.

The RBA expects consumer price inflation to peak at 3.9% in the second quarter, before easing to 3.6% by the end of the year and 2.6% by the end of 2027. Underlying inflation is projected to slow to 3.3% by the end of the year from a peak of 3.6% last quarter.

The bank's quarterly Statement on Monetary Policy also noted that the labour market has eased more than expected, with unemployment stable around 4.4% before rising to 4.8% by mid-2028. The RBA expects subdued growth in demand will bring the economy into balance next year, reducing inflationary pressures.

Financial conditions remain tight, which is expected to weigh on household consumption and dwelling investments. However, the bank's economists noted that consumer price sensitivity is constraining pass-through to selling prices.