Speech by Ian Harper AO, Monetary Policy Board Member, CEDA, Melbourne - 2 June 2026

Why It Matters

The RBA’s assessment of renewed inflationary pressure and a potential policy tightening will shape borrowing costs, corporate planning, and consumer spending in an already fragile growth outlook.

Key Takeaways

• Underlying inflation peaked Dec 2022, now near target range again.
• Recent demand surge and capacity constraints reignited price pressures.
• Middle‑East conflict spiked fuel prices, amplifying inflation directly and indirectly.
• Higher energy costs cut real incomes, likely slowing consumption and GDP.
• RBA may tighten policy further amid uncertain inflation outlook.

Summary

Ian Harper, a member of the Reserve Bank of Australia’s Monetary Policy Board, addressed CEDA on June 2, 2026, outlining the current inflation trajectory, the impact of the Middle‑East conflict on energy prices, and the board’s policy response. He emphasized that underlying, trimmed‑mean inflation peaked in the December 2022 quarter and has since drifted back toward the 2‑3 % target band, but recent demand rebounds and renewed capacity constraints have pushed price pressures upward again.

The board’s models show a positive output gap driven by stronger domestic demand and tightening supply, as reflected in the National Bank’s capacity‑utilisation indicator. Fuel price shocks from the Middle‑East war have added a direct 3.5 % CPI weight and indirect cost‑push effects across transport, groceries and housing, prompting the government’s temporary excise suspension. These dynamics erode real household incomes, dampening consumption, while higher export earnings from Australia’s status as a net energy exporter partially offset the shock.

Harper highlighted charts of trimmed‑mean inflation, the purple output‑gap band, and diesel‑price spikes to illustrate the “two‑edged sword” of higher energy prices. He noted that while savings buffers may smooth consumption, the RBA expects GDP growth to slow to around 1.3 % in the mid‑year and unemployment to edge higher, with labor‑market slack manifesting through reduced hours rather than mass layoffs.

The speech signals that the RBA is likely to resume rate hikes or hold a tighter stance until inflation firmly re‑anchors, distinguishing today’s environment from the 1970s oil shocks by lower oil dependence, the absence of wage‑price indexation, and an independent inflation‑targeting framework. Stakeholders should prepare for a more constrained monetary environment and a modest slowdown in economic activity.

Original Description

In this presentation, Monetary Policy Board member Ian Harper AO discusses current economic conditions, the economic outlook and offers insights into monetary policy decision-making in an uncertain environment.