Reserve Bank governor Michele Bullock says it’s “premature to be thinking about rate cuts”, as price pressures in the services sector keep inflation persistently high and stubborn.
Appearing before a parliamentary economics committee on Friday, Ms Bullock acknowledged the pressure interest rates — which were held steady at 4.35 per cent at this month’s board meeting — were putting on borrowers, but was unapologetic in the bank’s determination to get inflation back to target.
She said progress on getting inflation back to the two and three per cent target range until next year had been “very slow”, and was not expected to happen until next year and into 2026.
“Circumstances may change, of course, and the outlook remains uncertain. But based on what the board knows at present, it doesn’t expect it will be in a position to cut rates in the near term,” she said.
“I understand that is not what households want to hear. Those with mortgages are feeling the squeeze on their cash flows from the increase in interest rates over the past couple of years… But the alternative of higher inflation for loner is much worse.
“High inflation hurts everyone.”
While inflation has moderated from its peak in the December 2022 quarter, much of that reflected a stabilising price growth in goods. Pressures in the labour-intensive services sector, meanwhile, remained too high and were the biggest contributor for prolonged inflation.
“Inflation in services prices, on the other hand, has remained high, running at around 5 per cent,” Ms Bullock said.
“There’s been broad based inflation in market services, reflecting continued demand and the ability for some businesses to pass through costs.”
She singled out rents and insurance as other contributors to high inflation.
More to come.