Governor Michele Bullock noted that Australian firms are passing on higher input costs to consumers, heightening the risk that prices will remain elevated. The Reserve Bank of Australia board will determine later this month if the current benchmark interest rate is sufficient to return inflation to target. Bullock told a parliamentary panel on Friday that some businesses believe inflation will not return below 3%, even as labor market conditions remain slightly tighter than full employment.

There is broad agreement within the RBA that the neutral interest rate has increased, making persistent inflationary shocks harder to overlook. The board remains committed to hitting its inflation target, but Bullock warned that larger than expected easing of monetary policy could weigh on economic activity as the bank navigates prolonged oil price hikes.