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The Reserve Bank of Australia's governor says the federal government's proposed $300 energy bill relief will not have a "material" impact on reducing inflation, but is also unlikely to make inflation worse.
Appearing at a Senate estimates hearing in Parliament House on Wednesday morning, the RBA governor told the committee that the measure — a centrepiece of May's federal budget — was unlikely to reduce inflation to a point that would lead to potential rate cuts.
Responding to Nationals Senator Matt Canavan, Michele Bullock said the central bank would "look through" the rebate's impact on headline inflation and focus on the RBA's preferred "underlying" measure instead.
"The government's rebate … might affect people's expectations, and it also might affect prices that are indexed," Ms Bullock said.
"But in terms of the underlying pulse of inflation, we're looking through that to the underlying, the trimmed mean, if you like, and we don't think it's going to have an impact on that."
Asked whether the central bank is concerned that the rebate will contribute to higher inflationary pressures, Ms Bullock replied: "Not really".
"If you think about the $300, $75 a quarter off your electricity bill, are people going to go out and spend up big on that? I really don't think so," she told the Senate committee.
"If you hand someone $300 and say 'here's $300', I think psychologically, they think of that differently.
"[The energy bill rebate] is helping people who clearly are hurting at the moment, but I don't think it's material in terms of our forecast for inflation."
In May, the federal government forecasted that its cost-of-living relief measures in the budget, including the energy bill rebate, will contribute to reducing the Consumer Price Index — which measures inflation — by 0.5 percentage points by the end of the year.
Past rate hikes still flowing through the economy
Throughout her appearance before the Senate committee, Ms Bullock reiterated that the Australian economy was still traversing the "narrow path".
The phrase has become the central bank's unofficial motto as it works to reduce inflation while preserving the strength in the jobs market and keeping the economy out of recession — which the RBA often refers to as achieving a "soft landing".
To achieve this, the RBA can only control monetary policy by adjusting interest rates, however, any changes take time to flow through to the broader economy.
Since May 2022, the cash rate has risen from 0.1 per cent to 4.35 per cent — the highest interest rates have been since November 2011, and the steepest rate hiking cycle in the bank's history.
"Where are we in terms of that flow through of that impact of the interest rate rises that Australians have seen?" Labor Senator Deborah O'Neill asked.
"We generally think about the flow through of monetary policy to take 12 to 18 months in full," Ms Bullock replied.
"If we think, say, 12 months, there's maybe another 50 basis points (0.5 percentage points) or so maybe to come through.
"But maybe not, because the standard term here is there's long variable lags, and we don't know."
Ms Bullock, however, acknowledged there were significant uncertainties facing the economy — including recent increases in the monthly inflation figures, and said the RBA would not hesitate to lift rates again if necessary.
"If it turns out, for example, that inflation starts to go up again, or it's much stickier than we think, we're not getting it down, then we won't hesitate to move and raise interest rates again," she said.
"In contrast, if it turns out that the economy is much weaker than expected, and that puts more downward pressure on inflation, then we'll be looking to ease."
Ms Bullock later cautioned that the central bank was focused on the quarterly inflation figures as they were more comprehensive, but said they were challenging because "we only get four of them a year".
"We really need to wait and get a comprehensive read to see if that confirms what we're seeing in the monthly figures," she said.
A weak economy, getting weaker
Ms Bullock's appearance in Canberra came hours before the latest national accounts data was released by the Australian Bureau of Statistics, which showed that the Australian economy grew by only 0.1 per cent in the first three months of the year.
Prior to the release of the figures, Senator Jane Hume asked whether the central bank expected Australia's gross domestic product (GDP), which measures economic growth, to increase on a per capita basis.
"We expect growth to be quite low, and that would imply per capita GDP to be declining," Ms Bullock said.
"So if it is declining, that would be how many quarters in a row of either no or negative GDP per capita growth?" Senator Hume asked.
"I'm not sure. It would be at least the second, it might be the third. I wouldn't be 100 per cent sure," Ms Bullock replied.
The data from the ABS on Tuesday showed that Australia's economy experienced its fifth consecutive decline in GDP on a per capita basis — meaning the economy has been in a per capita recession since the end of 2022.
However, Ms Bullock told the Senate committee she found the "per capita recession" or "household recession" phrases to be unhelpful, but stressed the economy remains incredibly weak.
Asked by Senator Hume whether the federal government's budget was expansionary or contractionary, Ms Bullock replied it was a "very complex question" to answer.
"The reason it's not simple is it's not the only thing that is impacting whether or not we're in an expansionary or contractionary phase," she said.
"The start of your questions was (sic) all about how weak the economy is. There's the international environment as well, and China, so I don't think it's helpful to think about the budget and say 'it's expansionary or contractionary' without thinking about what else is happening in the economy."
Ms Bullock said the central bank would factor in the budget, the private sector of the economy and the international environment and how it would affect inflation when it revises its forecasts in August.
"I would note though, that Treasury in their forecasts … still have inflation coming back down into the band in the same timeline as we do by 2026," she said.