Reserve Bank of Australia expects high inflation until June 2025

The Reserve Bank has revealed it is expecting Australia’s inflation pain to continue until the middle of 2025.

Headline inflation was expected to return to the top of its 2 to 3 per cent target in June 2025, with the new forecasts contained in the RBA’s statement of monetary policy released on Friday.

Inflation in 2022 surged by 7.8 per cent, the steepest pace since 1990, and hasn’t been within the target range since the September quarter of 2021 when Sydney and Melbourne were still in lockdown.

But the RBA thinks the worst is over because global supply chain constraints are being resolved.

‘Inflation is likely to have peaked around the end of 2022 and is forecast to return to the target range over coming years,’ it said.

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The Reserve Bank has revealed it is expecting Australia’s inflation pain to continue until the middle of 2025 (pictured is Governor Philip Lowe this week outside his house at Randwick in Sydney)

‘The easing in global price pressures already underway is expected to flow through to domestic prices over time.’

A moderation in price pressures is also expected to coincide with more people looking for work, with the RBA expecting unemployment to hit 4.5 per cent by mid-2025, a level significantly higher than the existing 48-year low of 3.5 per cent. 

‘In addition, slower growth in domestic demand and a moderation in labour market conditions are expected to reduce domestic inflationary pressures,’ the RBA said.

Wages growth was expected to surge in late 2023 to a new 15-year high of 4.25 per cent, following nine years of pay levels being stuck below the long-term average of 3 per cent.

Unlike Treasurer Jim Chalmers, RBA Governor Philip Lowe is worried that wages are pushing up inflation. 

The RBA this week raised interest rates for a ninth straight month to a new 10-year high of 3.35 per cent.