Understanding supply shocks and their implications for monetary policy
Address by Ms Sarah Hunter, Assistant Governor (Economic) of the Reserve Bank of Australia, to the Australian Conference of Economists, Canberra, 8 July 2026.
The available text is limited to introducing a conceptual framework for assessing supply shocks; it contains no statement on the current rate stance.
This speech carries no signal about the monetary policy stance. Its score of zero means "no signal", not "balanced stance", so it is not included in the bank's average score.
Summary
Recalling the RBA's mandate of 2-3 percent inflation on average over the medium term and sustainable full employment, Hunter begins to explain how supply shocks should be read from a monetary policy perspective. She says the many forces affecting the economy's productive capacity, aggregate demand and costs need to be assessed together. She presents a simplified framework that combines both sides of the mandate in a single diagram: inflation on the vertical axis and the labour market's position between spare capacity and excess tightness on the horizontal axis. (BIS publishes only the introductory section of this speech; the full text is in the PDF.)
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BIS publishes only the introductory section of this speech; the summary and score are based on the limited text. See the PDF at the source link for the full text.
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RBA (Reserve Bank of Australia) · Australia
Introductory section of the speech
Source: Reserve Bank of Australia. © Reserve Bank of Australia, licensed under Creative Commons Attribution 4.0 (CC BY 4.0). The text was extracted automatically from the publisher's PDF or web page; only line breaks were adjusted. Footnotes and tables may have turned into plain text — see the source for the official text.
It's a pleasure and honour to be addressing the Australian Conference of Economists and to have the opportunity to connect with so many professional colleagues and friends. Thank you to Bob Breunig and the rest of the organising committee for the invitation. Before I start, I would like to acknowledge the Traditional Owners of this land, the Ngunnawal people, and the other First Nations people who are custodians of this part of our beautiful country. We are very lucky in Australia to have a First Nations people that take such good care of our land and culture and pass this on to future generations. I pay my respect to elders past and present and extend this respect to any First Nations people here with us today.
The RBA is mandated to maintain, on average over the medium term, a 2–3 per cent band for inflation and sustained full employment – that is, the current maximum level of employment that is consistent with low and stable inflation. The target outcome is therefore clear, ensuring inflation returns sustainably to target. To do this, we have to account for a myriad of different economic forces that influence the productive capacity of the economy, aggregate demand, and costs and inflation.
To bring all of these factors together, it's helpful to take a simplified top-down view. Figure 1 does this by representing the two parts of our mandate. The vertical axis represents inflation, with a dashed line at 2.5 per cent, which is the midpoint of the target band. The horizontal axis represents conditions in the labour market and the economy more broadly; on the right-hand side of the vertical line there is spare capacity in the economy, and the labour market is operating below full employment. On the left-hand side, the economy is operating beyond its sustainable capacity, and the labour market is tight.