The Reserve Bank doesn't think it'll have to increase interest rates again. It certainly doesn't want to. But it might have to, so you should be prepared.
That was, broadly speaking, the message from Governor Michele Bullock yesterday after her board kept rates on hold at 4.35 per cent – even though they discussed what would have been a 14th hike.
"We don't think we necessarily have to tighten again," she said in her media conference following the rates decision.
"But we can't rule it out. If we have to, we will.
"If we really think that inflation is going to be persistent and significantly above our forecasts, we will tighten again."
That threat of hike number 14 was kept very much on the lectern throughout Bullock's press conference. The board would be "vigilant" and "very watchful" because higher inflation would be "more costly".
"I would say to people who are struggling that I understand they are struggling. Part of the reason they are struggling is not just interest rates, though," she said.
"It's inflation.
"The best thing that I can do for them is to try and get inflation back down so that they don't have to worry about the prices of their everyday things continuing to go up.
"That's the best thing I can do for them. I understand the interest rates hurt, but that's the tool I've got and that's the best thing I can do for them."
But there's one other weapon Bullock has in her arsenal, and she used it to full effect yesterday.
"There's more in the Reserve Bank of Australia's toolkit than just interest rates," Moody's Analytics economist Harry Murphy Cruise said.
"When the RBA speaks, households listen. And (the) statement by the board speaks volumes.
"The board has taken a slightly more hawkish tone this month... keeping the prospect of a future rate hike in play."
While some of that is a genuine willingness to raise rates if needed, he says it also serves another purpose.
"The threat of future rate hikes can sometimes be enough to dampen demand without the need to actually pull the trigger," Murphy Cruise said.
"Indeed, we think the most likely outcome is for rates to stay where they are until December."
At any rate, inflation is likely going to be higher for longer than what was thought a few months ago. The RBA's short-term annual forecasts, up to 3.8 per cent, say as much.
"A really big part of that" is perennially problematic petrol prices, Bullock said yesterday, but there are other culprits.
"Australia is joining a growing list of economies proving that the final mile of bringing down inflation is the hardest... Service inflation, the main culprit holding back progress, jumped 4.3 per cent in the March quarter," Murphy Cruise said.
These countries have the highest income tax rates in the developed world
"It was buoyed by the biggest jump in insurance premiums in 23 years, rents growing at their fastest annual pace since 2009, and education fees experiencing their steepest quarter-on-quarter rise in 12 years.
"What is more, a chunk of progress on inflation has come from temporary government rebates that will eventually unwind."
Moody's has pushed back its forecast of when inflation will be back on target by three months, until June 2025. The RBA reckons it'll be closer to the end of that year.
But as for a change in interest rates? Maybe the threat of a rise will be enough.
