Philip Lowe: Inflation and the monetary policy framework

Speech by Mr Philip Lowe, Governor of the Reserve Bank of Australia, to the Anika Foundation, Sydney, 8 September 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to begin by thanking everybody who is attending today in support of the Anika Foundation. It's been a hard time for young people over the past couple of years, so the Foundation's work supporting young Australians is more important than ever. Thank you for your support.

Last year, this event was held online as we were in the midst of the Delta outbreak. At the time, the economy was contracting, inflation was below the target band and the normalisation of monetary policy still seemed to be in the distance. A year on, a lot has changed. We are no longer in lockdowns, the economy has performed well, unemployment is at a 50-year low, inflation is the highest it has been in years and interest rates are being increased quickly.

Today, I would like to focus my remarks on the pick-up in inflation. After a number of years in which inflation was below target, it is now considerably above target and is expected to go higher still in the short term. The extent of this turnaround in inflation has come as a surprise to many, including us. So, I would like to begin by exploring some of the lessons from this surprising burst in inflation. I will then discuss why, in my view, flexible inflation targeting remains the appropriate monetary policy framework for Australia. I will conclude with some remarks on the importance of returning inflation to target over time and how the RBA's recent monetary policy decisions will help achieve this.