Reserve Bank Governor Michele Bullock spoke to the media after the central bank's decision to hold interest rates at 4.35 per cent on June 18, 2024.
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00:00Inflation has come down a long way since it peaked in 2022, both in Australia and overseas.
00:06And part of this was the resolution of supply chain issues, and also energy prices easing
00:11which has helped.
00:12But it also reflects the tightening of monetary policy all around the world and that's helping
00:17to dampen demand.
00:20That said, inflation is still above central bank targets in many economies and it is proving
00:24to be sticky.
00:26And the progress in getting inflation down has slowed and Australia isn't any different
00:30here.
00:32So since the previous meeting we've had March quarter national accounts which has told us
00:36a few interesting things.
00:39First the March quarter consumption data and upward revisions to its history mean that
00:43consumption growth has been a bit stronger than we thought and the savings rate a bit
00:47lower.
00:48At the same time, I think you'll all remember that GDP barely grew in the quarter and consumption
00:54per capita continued to decline.
00:57We do expect that household real incomes will rise later in the year with tax cuts
01:01and lower inflation, so it is possible that consumption growth will also be a bit stronger.
01:08But we also know that many households are really feeling the impacts of high inflation
01:12and higher interest rates.
01:14And as I noted earlier, on average households have reduced their saving rate by more than
01:19we thought to support their spending.
01:21It's tough just to keep up with essentials.
01:23Groceries, petrol, health, education, rents, insurance expenses, I could go on, they're
01:29all going up.
01:31On the other hand, labour market conditions are quite strong.
01:36The unemployment rate published last week was at 4% for May.
01:41Employment is still growing, it's just growing a bit more slowly than it was a year or so
01:44ago.
01:45Now this is important for the other part of our mandate because people having jobs is
01:50critical to them being able to meet the challenges of the higher cost of living.
01:55Wages growth in the March quarter was a bit weaker than expected and we think it's likely
01:59to have passed its peak for the current cycle, but growth of unit labour costs was still
02:04a bit high.
02:06The monthly CPI indicator for April was stronger than expected, however there's been limited
02:12information about services inflation since the May board meeting.
02:16And this is where the most recent strength has been coming from.
02:20So really we need to get more comprehensive readings on inflation before we can get a
02:25handle on the momentum in services inflation.
02:29So what does this all mean?
02:31Well the recent data have been mixed, but overall I think they reinforce the need to
02:36remain vigilant to the upside risks to inflation.
02:39We still think we're on the narrow path, but it does appear to be getting a bit narrower.
02:45We need a lot to go our way if we're going to bring inflation back down to the 2% target
02:50range.
02:51The board does need to be confident that inflation is moving sustainably towards target and it
02:56will do what is necessary to achieve that outcome.