The RBA’s August move marked a return to its projected easing cycle, with cuts pencilled in for November and February to bring the cash rate to 3.1% before settling at 3% by late 2027. With trimmed mean inflation forecast to hit the mid-point of the target band by December 2027, the Bank appears broadly comfortable with current market pricing. The Governor’s messaging underscored the Board’s intention to balance progress towards the inflation target with the risk of rekindling demand too quickly.

One of the most notable revisions in the Statement on Monetary Policy was the medium-term productivity growth assumption, lowered to 0.7% annually from 1.0%. While this change did not directly alter inflation forecasts, it highlights a structural challenge: output is lagging despite unemployment and inflation tracking as expected. This suggests the economy may already be operating in a lower-productivity regime, complicating the path to sustained growth. The implications are poor for households in terms of income growth and stagnant in terms of improvements to standard of living. This is worrisome for consumption demand and retail spending, seeing increased savings and reduced household consumption.

• The RBA’s inflation analysis points to multiple, and at times offsetting, forces: A persistent disinflationary impulse from slower Chinese demand and global goods prices easing.

• Stabilisation of the trade-weighted index and modest AUD appreciation, helping contain import-driven inflation.

• Continued easing in market services inflation as firms face margin pressure and subdued pricing power.

• A more moderate role for imported goods in lifting consumer durables prices.

The RBA has revised down its GDP growth projections, with output expected to peak at 2.1% year-on-year in December 2026. Weaker household spending is a central concern, prompting an upward revision to the household savings rate. Dwelling investment remains a bright spot, supported by easing construction costs, but the broader growth picture remains clouded by tepid business investment and global demand risks.

The labour market outlook remains largely unchanged, with unemployment expected to hold at around 4.3%. In this regard we differ to the RBA, expecting unemployment to accelerate. However, nominal unit labour costs are forecast to decline gradually, reflecting easing wage pressures. Real income growth has been revised lower, acting as a drag on household consumption.

The RBA’s latest moves confirm its shift from emergency restraint to calibrated easing, underpinned by confidence in the inflation trajectory but tempered by structural headwinds in productivity and consumption. The challenge now is to sustain this delicate balance: easing policy enough to support growth without reigniting inflationary pressures. Success will depend on the economy’s capacity to adapt to a lower-productivity world while positioning for the next expansion cycle.

We have a low level of optimism that Australia is in fact well placed to meet its productivity challenges. This is due to a number of factors and influences, from taxation drag, employment policy, red tape and efficiency, and the dominant and inefficient role of fiscal policy both at the Federal and State level.