Inflation Risks Persist: RBA June Minutes

The Reserve Bank of Australia’s June 15–16 meeting minutes underscored persistent concern that inflation remains well above the target of 2 to 3%, with underlying pressures expected to intensify in the June quarter. Policymakers noted widespread labor cost strains and weak sentiment among households and businesses, even as activity data pointed to a cooling economy. The board signaled further tightening remains possible after three rate hikes this year, arguing that restrictive policy and elevated oil prices could temper demand and aid rebalancing. Headline inflation eased to 4.0% in May from 4.2% as fuel costs fell, but core inflation accelerated, with the trimmed mean rising to 3.6% from 3.4% as firms passed on higher costs tied to Middle East tensions. While the board discussed prospects for easing regional strains, it cautioned that “global commodity supply constraints would take some time to resolve,” even if a lasting resolution emerges.

The Reserve Bank of Australia still has more work to do to bring inflation back to target, Deputy Governor Andrew Hauser said in a speech. He described price growth as "too high," but noted that lower global oil prices from a potential easing of tensions between the U.S., Israel, and Iran would be a positive development. Hauser explained that the board began raising interest rates in February after concluding that demand was exceeding the economy's supply capacity by more than expected, fueling inflation. He said operating on the steeper part of the Phillips curve meant timely policy tightening could curb inflation with a relatively smaller impact on unemployment. "Timely policy steps to reduce inflationary pressures, of the kind we have taken, should also have a proportionally smaller unemployment cost," he said. Headline inflation slowed to 4.0% in May while underlying inflation accelerated to 3.6%, remaining above the central bank's 2%–3% target range.

The Reserve Bank of Australia kept its cash rate unchanged at 4.35% in a unanimous decision at its June meeting, in line with market expectations, as the effects of the three increases earlier this year continue to feed through the economy. The Board noted that financial conditions are now tighter than before, with signs that economic activity is slowing. Nonetheless, policymakers warned that inflation remains elevated, extending the material pickup seen in H2 2025, driven by stronger capacity pressures and higher fuel and commodity prices linked to the Middle East conflict. While oil prices have eased recently, they remain above pre-conflict levels, with evidence of pass-through to goods and services. Meanwhile, labour market conditions are mixed, with higher unemployment in April but other indicators of labour market health proving more resilient. Business investment also remains solid, and credit is readily available.