RBA 'failed' to get inflation under control and last year's interest rates cuts were a 'mistake', leading economist says
Last year’s three interest rate cuts were a “mistake” and the Reserve Bank of Australia “failed” to bring inflation down, a top economist has said as price rises plague households.
Data platform Trading Economics shows Australia has the equal second-highest trimmed mean inflation rate among all advanced economies.
Australia’s trimmed mean inflation rate of 3.6 per cent is equal to the Netherlands’ rate, but remains below only Iceland’s rate of 6.5 per cent.
EQ Economics managing director Warren Hogan said the RBA’s fight against inflation after the pandemic was ineffective.
“This inflation is getting quite embedded now,” Mr Hogan told Business Now.
“The Reserve Bank has failed to hit their target all through these last few years.”
Pressed on whether the central bank’s decision to lower the cash rate 75 basis points throughout 2025 was a “mistake”, Mr Hogan vehemently agreed.
“It was,” he said.
“The RBA and others will argue that they did it on the base of the information they knew but they also had openly said they were running an experiment and never raised rates as much as other countries.
“I can’t see any argument for this not being anything but a disaster.”
Trimmed mean inflation examines the middle 70 per cent of price changes in the consumer price index and is central to the RBA’s rates decisions.
Many other nations hiked interest rates earlier and more aggressively than Australia when inflation soared following the pandemic.
However, the lowest point the RBA managed to bring trimmed mean inflation down to after the pandemic was 2.8 per cent in June 2025.
This is above the mid-point of the RBA’s 2-3 per cent target band.
Many similar economies saw their trimmed mean inflation rate fall within the RBA’s 2-3 per cent target band.
The United Kingdom’s rate is currently 2.6 per cent, Germany’s is 2.5 per cent, South Korea’s is 2.4 per cent and the USA has a 2.9 per cent trimmed mean inflation rate.
Mr Hogan said the recent slump in house prices and clearance rates may not be enough to bring down inflation as high public spending and the RBA acting late may enmesh price rises.
“I’m not sure that our inflation is going to be heading in the right direction anytime soon,” he said.
“I’m sceptical whether or not the housing downturn is going to be enough to do that.
“So we’re in a bind. It reflects the RBA not doing enough originally a couple of years ago and it also reflects the fact that the governments of Australia are not playing their role by moderating their spending, not cutting it, just not growing it as fast.”
The RBA has been forced to hike the cash rate three times this year, undoing the cuts of 2025.
The central bank warned it is willing to deliver more hikes if necessary to bring inflation back down.
“The board will remain focused on its mandate to deliver price stability and full employment and will do what it considers necessary to achieve that outcome, including increasing the cash rate target if necessary,” the RBA’s minutes from its June meeting said.
The RBA board stressed there was “merit” in holding at the recent meeting to assess how the rate rises were impacting the economy.
After holding the cash rate last month, RBA governor Michele Bullock warned that inflation was still “too high” and rates may need to lift again if inflation expectations get stuck in the economy.
“If expectations of higher cost growth get embedded into price and wage setting decisions across the economy, this would lead to even higher and more persistent inflation, and it would require even more tightening in monetary policy to get inflation under control,” Ms Bullock told reporters.
“Today’s decision does not rule out further tightening in monetary policy if that is what is required to bring inflation down.”