there remains a great deal of uncertainty around inflation outcomes that far out. even if the economy evolves along the central path, inflation will still have been outside the target range for four years. the longer inflation remains high and outside the target range, the greater is the risk that inflation expectations of households and businesses adjust higher. and if that happens, then the risks of inflation becoming entrenched at a higher level rise. this is the balancing act that the board is focused on. we are trying to bring inflation back to target without slowing the economy more than necessary on the one hand or risking high inflation for longer on the other hand. this leads me to the board's thinking and its recent decisions. recent board decisions at the time we last met in august, the cash rate target was at 4. 1 per cent. the board had left the cash rate at that level since june and indeed continued to hold until november when it increased the cash rate by a further 25 basis points. the decision to raise the cash rate at that time was based on information that had been coming through on inflation, the labour market and economic activity. the weight of that information, plus the rba's updated forecasts, suggested that the risk of inflation remaining higher for longer had increased. the board noted that while the economy was experiencing a period of below - trend growth, it had been stronger than expected over the first half of 2023. underlying inflation was higher than expected at the time of the august forecasts, 2 / 5 bis - central bankers'speeches particularly in services, and conditions in the labour market had eased but remained tight. in addition, housing prices were continuing to rise across the country. these factors, plus the fact that inflation was projected to remain above 3 per cent for another two years led the board to increase interest rates to be more assured that inflation would return to target in a reasonable timeframe. since then, we have received more information on the economy and inflation. first, to the economy. tighter monetary policy has contributed to a further slowing in demand. weak household spending growth, particularly in per capita terms, has been only partly offset by strong growth in business investment and public demand. that said, labour market conditions remain tight but have continued to ease over recent months in response to slower economic growth. the unemployment rate and the underemployment rate have both increased by around ½ percentage point since mid2023, albeit from low levels. wages growth remains strong by the standards of

cent of items in the consumer price index ( cpi ) were recording price rises of more than 3 per cent per annum. so, the problem has been a broad - based one. this is why the board is focused on bringing inflation down. the board understands that the rise in interest rates has put additional pressure on the households that have mortgages. but the alternative of lower interest rates and high inflation for a prolonged 1 / 5 bis - central bankers'speeches period would be even worse for these households, as well as all the households without mortgages. it would also make it more likely that inflation expectations would adjust upwards. and if this were to happen, it would be much more costly to address, involving high inflation for longer and even higher interest rates and a larger rise in unemployment to bring it down. recent developments in inflation are encouraging. since peaking at 7. 8 per cent in the december quarter of 2022, inflation declined to 4. 1 percent at the end of 2023. nevertheless, inflation is still too high. as you know, since the early 1990s the board has had a target for annual consumer price inflation of between 2 and 3 per cent on average over time. the new statement on the conduct of monetary policy endorses this but makes it more explicit that we should be aiming for the middle of the range – 2. 5 per cent. so, we have some way to go to meet our target. i should add here that we are not unique in experiencing a period of above - target inflation. inflation has been a challenge in most economies around the world – particularly those with which we typically compare ourselves. at least initially, this was a result of global supply chain issues coupled with strong demand for goods and rising energy prices. this saw inflation around the world rise to rates not experienced for many years, if not decades. as these influences have subsided, global inflation has eased and there has been encouraging progress towards central banks'targets. but services sector inflation remains high in many countries, partly reflecting demand remaining above supply and the associated tightness in labour markets. on tuesday, we released our updated forecasts for the economy and inflation. these forecasts have inflation returning to within the top of the target range – 3 per cent – in 2025 and to reach the midpoint of the target range in 2026. importantly, these forecasts are conditioned on the assumption that inflation expectations remain anchored around the midpoint of the target range. furthermore, these are our central forecasts and