RBA governor Michele Bullock warns high prices are here to stay

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RBA governor Michele Bullock warns high prices are here to stay

They are the five words Australians battling to get by didn’t want to hear, but the Reserve Bank governor has made it clear that prices won’t be coming down.

Michele Bullock delivered the bad news on Friday, warning that despite inflation being reined in, the 18 per cent rise in prices seen since the start of the pandemic-induced cycle was here to stay.

The comments came days after Australians were given their first interest rate cut since November 2020, with the RBA cutting the cash 0.25 percentage points to 4.1 per cent.

Part of the problem is that the RBA and its board didn’t move fast enough to combat inflation when it started surging in mid-2021. It was one of the last central banks to raise rates in response to inflation driven by the pandemic and the war in Ukraine.

In an extraordinary admission during a three-hour grilling by politicians in Canberra, Ms Bullock conceded the RBA — when it was still led by her predecessor Philip Lowe — took too long to lift interest rates when prices first took off.

This week’s rate cut was to avoid being late again, she said.

“Arguably we were late raising interest rates on the way up, we didn’t respond as quickly as we should have to rising inflation,” Ms Bullock told a Senate committee.

She pointed to better than expected inflation data in December, and the fact that wages were “well behaved” as giving the Bank enough confidence to act and get in front of the lag effect of rate movements.

Core inflation slowed to 3.2 per cent in December — the slowest pace since 2021 — as it edges closer to the RBA’s target range of 2 to 3 per cent.

“I think the board has been quite cognisant of the fact that . . . if we’re going to start reducing interest rates, then we need to be thinking of doing it not when we are already back in the (inflation target) band, but as we start to get more confidence that we’re coming back to the band.”

But Ms Bullock warned that slowing inflation would not translate to hip pocket relief.

“The unfortunate news is that the price level doesn’t go back,” she said.

“We can get inflation down to stop it increasing quite so quickly in the future, but the price level isn’t going back to where people remember it being a few years ago,” she said.

Wages would have to do the work instead.

“I don’t expect it will start feeling better immediately, but I think if we can keep inflation back down in the target band and real wages are rising, I think people will start to feel a bit better over the coming year,” she said.

Ms Bullock continued to assert that the Bank would be “data-driven” and “cautious” in the next rate cut, explaining that it was treading a so-called “narrow path” between keeping inflation in check or overly stimulating the economy.

Speaking to reporters, Opposition Leader Peter Dutton said Ms Bullock had done an “exceptional job” as governor, while underscoring the central bank’s independence.

“Everyone’s 20/20 with the benefit of hindsight and no doubt the bank, if they believe that they’ve made mistakes in the past, they’ll learn from that so that they can get it right into the future,” he said.

The RBA governor also spoke about the declining use of cash, which she said may only be around for another 10 years.

However, she committed to ensuring Australians will be able to access and use cash despite “considerable challenges” faced in its distribution system.

“Cash is used as a store of wealth, particularly during periods of economic uncertainty, and can be a useful backup for electronic methods of payment,” she said.

“The RBA is committed to supporting the *********** Government’s policy objective to ensure cash remains a viable means of payment for as long as Australians want or need to use cash.”

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