in the unemployment rate is also expected over the months ahead, although most of the adjustment in the labour market is likely to be through declines in hours worked and participation, rather than in job losses. as we assess the impact of the lockdowns on the economy, it is important not to lose sight of the fact that not all of australia is affected. significant parts of the australian economy are still on the positive trajectory that was in place before the recent outbreaks. this is quite different from the situation in the first half of last year, when the whole of australia was in lockdown. so, it is a mixed picture. the third theme from the statement on monetary policy is that the economy is expected to bounce back quickly once the restrictions ease. the experience both in australia and elsewhere is that once restrictions are lifted, spending 1 / 4 bis central bankers'speeches recovers strongly, especially if people have confidence about the future. while the exact timing of the bounce - back is difficult to predict, it is likely to start well before the end of the year. the vaccination program is ramping up and governments are providing significant targeted income support to help businesses and households get through this difficult period. this means that there is a pathway out of the current difficulties this year. at its meeting earlier in the week, the reserve bank board considered a range of possible scenarios for the australian economy over the next couple of years. our central scenario is that the economy will return to strong growth in 2022, with gdp increasing by a little over 4 per cent, to be followed by growth of around 2½ per cent in 2023. in this scenario, the unemployment rate resumes its downward path to reach around 4¼ per cent by the end of next year and 4 per cent the following year. the board also considered upside and downside scenarios, the details of which will be published later today, with much depending on the health outcomes. one source of uncertainty is the possibility of vaccine - resistant virus strains emerging over time. another is that it is still unclear what type of adjustments our society will have to make to live with covid on an ongoing basis. once vaccination rates are high enough, we will be living with a virus that is endemic rather than living through a pandemic. what this endemic phase looks like is still to be determined. on the upside, it is possible the australian economy will again experience a run of positive surprises, as it did earlier this year. if we

are successful in containing the virus over the months ahead, it is possible there will be stronger upswings in both investment and consumption than envisaged in our central scenario. the fourth theme is that we have not seen the same upside surprises in wages and prices that we have experienced in jobs and output, and that it will take some time for inflation to be sustainably in the 2 to 3 per cent target range. both wages growth and underlying inflation are subdued and we expect this to remain the case for some time yet. while there have been reports of labour shortages in parts of the country and a step - up in wages for some occupations, wage increases for most australians are still modest. underlying inflation also remains low at around 1¾ per cent over the year to the june quarter. in contrast, the headline inflation rate spiked to 3. 8 per cent in the june quarter, but this largely reflected the unwinding of some earlier covid - 19 - related price declines. in our central scenario, both wages growth and underlying inflation pick up, but do so only gradually. the central forecast is for underlying inflation to be 1¾ per cent over 2022 and then 2¼ per cent over 2023. growth in the wage price index is expected to pick up gradually to 2¾ per cent over 2023, with growth in other measures of labour costs slightly higher than this. one source of forecast uncertainty here is that australia has had little recent experience with the low unemployment rates that are being forecast. at the peak of the resources boom in 2008, the unemployment rate briefly got as low as 4 per cent, but before that the last time the unemployment rate was at 4 per cent was in the early 1970s. our economy and our institutions were very different then than they are today, making it hard to draw any lessons. notwithstanding the uncertainties, there are a number of factors that make it likely that the pickup in wages and inflation will be gradual. these include : enterprise agreements that run for a number of years ; a business mindset that is very focused on cost control ; inflation expectations that are low ; relatively high ongoing rates of underemployment ; and that it will take some time yet before the spare capacity in the economy is fully absorbed. together, the factors help provide a basis for expecting that australia can sustain an unemployment rate in the low 4s, but time will tell. that brings me to the final theme of the statement on monetary policy – that is, the rba ’