Reserve Bank of Australia Governor Michele Bullock has redirected attention to inflation as the primary economic concern following a tumultuous week involving accusations against Treasurer Jim Chalmers for criticising the central bank.
In a speech, Bullock emphasised the damaging impact of high inflation on households and businesses, reinforcing the RBA's commitment to reducing inflation to the 2% to 3% target range.
Bullock avoided mentioning government fiscal policy or public spending during her 13-page address.
Bullock highlighted inflation's disproportionate impact on lower-income borrowers, noting that while the RBA also targets full employment, it won't allow inflation to remain high indefinitely.
She argued that sustained inflation would ultimately hinder long-term labour force goals.
Bullock previewed the upcoming financial stability review, revealing that 5% of owner-occupiers with variable rate loans face financial challenges, with lower-income borrowers overrepresented.
She warned that if inflation persists, and interest rates remain elevated or rise further, the number of borrowers struggling to meet repayments could increase.
While the RBA does not anticipate rate cuts from the current 4.35% level in the near future, Bullock acknowledged uncertainty in economic forecasts, particularly regarding household consumption and employment trends.
Recent National Accounts data has shown a sharp slowdown in spending.
The renewed focus on inflation follows comments from Chalmers, who, on Sunday, noted that higher interest rates and global volatility were "smashing the economy."
"We know that if high inflation becomes entrenched, it becomes more difficult and costly to reduce," Bullock warned.
"This would require even higher interest rates, slowing the economy further, raising unemployment, and increasing the risk of recession."
She added that many Australians under 40 are experiencing high inflation for the first time, underscoring its widespread and particularly severe impact on vulnerable populations.