CBA: Interest rates “will stay structurally higher”

CBA chief economist Luke Yeaman has written a report warning that Australia is approaching the most difficult phase of the inflation battle.

CBA’s base case remains that slowing growth, falling house prices and rising unemployment will eventually bring inflation down and allow the RBA to pause. However, unlike earlier in the year, the bank now sees a meaningful risk that inflation “will stay structurally higher” because of weak productivity, elevated public spending, AI-driven investment, and higher neutral interest rates, which could keep inflation above target and require a significantly higher cash rate than markets currently expect.

Thus, CBA believes the RBA is caught between two competing narratives: