Australia’s inflation accelerated in the second half of 2025 and was deemed “too high,” according to the Reserve Bank’s February meeting minutes. While policymakers viewed much of the increase in underlying inflation as temporary, they judged that part of it reflected more persistent price pressures.
Consequently, the central inflation forecast was revised materially higher. Inflation is now expected to remain above the target band through 2026 and to return only close to the midpoint around mid-2028, on the assumption that the cash rate follows the market-implied path.
Model estimates indicated that spare capacity in the economy had narrowed, with aggregate demand outstripping supply and the labour market remaining somewhat tight. Solid output growth, resilient global conditions, and still-elevated unit labour costs were seen as reinforcing these capacity constraints. Members also expressed concern that financial conditions might no longer be sufficiently restrictive.
Taken together, these factors led members to conclude that there was a stronger case for a 25 bp increase in the cash rate, as upside risks to inflation had risen while downside risks to full employment had diminished.
