Australia’s Economic Outlook Remains Balanced as Inflation Eases

Australia’s economy is showing signs of resilience, with the Reserve Bank of Australia (RBA) highlighting both upside and downside risks to growth. Speaking at a financial industry conference, RBA Assistant Governor Sarah Hunter noted that consumer spending is beginning to pick up, while core inflation is moving closer to the central bank’s target range.

Hunter, who heads the RBA’s economics division, emphasized that underlying inflation is broadly in line with forecasts. However, she acknowledged that price disinflation has been slower than expected. Core inflation eased to 2.7% in the June quarter, a significant decline from its peak of 6.8% in late 2022. This progress places inflation within striking distance of the RBA’s 2% to 3% target band, a key benchmark for monetary policy.

Economic growth also surprised on the upside, with the June quarter delivering the fastest annual expansion in nearly two years. A rebound in consumer spending helped drive momentum, even as monthly inflation unexpectedly spiked higher in July.

The data has complicated the interest rate outlook. Investors now see little chance of a rate cut at the upcoming meeting, though futures suggest an 80% probability of an easing move in November. So far this year, the RBA has lowered rates three times, bringing the cash rate to 3.60%. Markets are also pricing in an additional 50 basis points of cuts, which would take rates to 3.10%.

Hunter reaffirmed the RBA’s commitment to balancing inflation control with employment stability, underscoring the bank’s aim of keeping the economy near full employment while ensuring price pressures remain contained.

At present, Australia’s economic outlook appears steady, but policymakers remain cautious as shifting consumer trends and inflation dynamics continue to shape future rate decisions.