RBA chief warns price shock won’t reverse as essentials stay higher

The Reserve Bank of Australia’s governor told the House of Representatives Standing Committee on Economics that, while inflation has fallen materially, the price level isn’t coming back down to pre-pandemic levels. The higher cost of living is expected to stay above pre-Covid levels and will weigh on households, including mortgage holders, renters and small businesses.

Bullock said the higher price level has affected everyone—whether you’re paying a mortgage, renting, running a business or just trying to make ends meet. "The higher price level has affected everyone - whether you're paying a mortgage, renting, running a business or just trying to make ends meet," she said. "It’s been especially tough on people with lower incomes and those in more vulnerable situations." Earlier, RBA assistant governor Sarah Hunter warned that prices would never return to pre-pandemic levels. "The cost of living is now higher and we are not trying to bring the price level down," she said, adding that her personal price point—milk—illustrated the point: "The milk I get in the supermarket every week is an awful lot more expensive than what it was pre-Covid. The price of milk will not go back to where it was pre-Covid, same with bread, other staples, petrol and so on."

Teal MP Allegra Spender pressed Bullock on whether housing supply was adequate and whether new policies risked inflating prices. "Yes you're absolutely right it's a supply issue and are we close to meeting it? All estimates suggest we are not," Ms Bullock answered. She explained that demand is driven not just by population growth, but by the fact that households are getting smaller — more people living alone or in smaller family groups — so even if the population grows at the same rate, more homes are needed because each household now uses up more of the housing stock.

RBA head of financial systems Brad Jones said the Albanese government's upcoming expansion of the first home buyer deposit scheme would slightly boost dwelling prices, according to the bank's modelling. "At the very margin, you may see a little more upward pressure on house prices in the short term, recognising that first home buyers account for about 20 per cent of the flow of new housing credit," Dr Jones said.

The RBA also highlighted that Australians would be paying more for their power bills in the coming months, with inflation predicted to peak in the first quarter of 2026. Electricity prices rose by 13 per cent in July after state rebates ended. Bullock said the world was seeing a "really marked step change" in the global trading system, and it could take years for the implications to become clear. She noted geopolitics and cyber risks as important considerations, with potential impacts on energy prices and other parts of the economy. There was little sign markets had priced these risks into equity valuations, leaving room for an adjustment if conditions deteriorate. "Certainly, high credit risk companies don’t seem to be observing high risk in their borrowings," she said, warning that a rapid downturn could trigger a painful correction and threaten financial stability.