The bank has maintained it wants to see inflation “sustainably” in its target band before cutting rates.

Inflation has been within the Reserve Bank’s target band for only 10 per cent of the past decade.

Government spending, including support through aged care and the National Disability Insurance Scheme, continues to add to economic growth. The bank believes public spending is likely to remain “robust” over the coming years.

While there is tipped to be a drop-off in public spending in the near term, the bank said this was likely to be temporary “given investment spending announced in government budgets and the large pipeline of engineering work yet to be done”.

Business investment, however, is tipped to flatline by year’s end before starting to improve modestly.

Household spending, which was negative in the June quarter, has been softer than expected by the bank.

“Households remain budget conscious, reducing non-essential spending, trading down to cheaper items, shopping around more to compare prices and waiting for items to go on sale,” the bank said.

“Households are spending less on experiences and eating out and choosing more affordable options for their holidays.”

Despite the stage 3 tax cuts, which some economists expected to feed into higher spending by consumers, the bank now believes more will be saved.

The jobs market continues to surprise, outperforming most other developed countries. Employment growth is tipped to be stronger over the coming year, with unemployment likely to peak around 4.5 per cent by late 2025. It is currently 4.1 per cent.

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But the bank noted that in its talks with businesses, employment intentions were edging lower and were now below their long-term averages. Businesses have told the bank they are winding back new jobs as they try to control costs, lift productivity or face weaker demand.

While energy rebates have reduced headline inflation, the bank said lower petrol prices and an earlier than expected slowing in rents would also bring down price growth.

While housing construction costs remain high, the bank said a range of factors meant the rental market was easing.

“This reflects slowing growth in demand for housing through an increase in average household size, possibly due to affordability constraints and slowing population growth,” it said.

The bank noted that population growth was likely to ease a little quicker than it had expected, partly due to the federal government’s changes to foreign student visas.

While some economic commentators have claimed the slowdown in population growth will help ease inflationary pressures, the bank said the absence of migrants would affect the ability of the economy to supply the goods and services demanded by existing residents.

“This slowing in population growth is expected to weigh on GDP growth from mid-2025,” it said.

“However, it will also reduce the economy’s supply capacity, such that there will not be a material effect on the degree of spare capacity in the economy and therefore inflation.”