Inflation Could Stay Above Target Until 2028, RBA Warns

An outgoing RBA board member warns inflation may not return to the 2–3% target band until 2027, keeping pressure on mortgage rates for years ahead.

The Reserve Bank of Australia's own Monetary Policy Board has sounded a fresh alarm on inflation, with an outgoing board member warning that elevated prices could remain above the RBA's target band for several more years — and that "strong action" may be required if long-term expectations continue to slip.

For borrowers on variable-rate mortgages, the message is blunt: don't plan on sustained rate relief arriving anytime soon.

What the RBA Board Member Said

As [The Adviser reports](https://www.theadviser.com.au/borrower/48506-inflation-outlook-concerning-warns-rba-board-member), outgoing RBA Monetary Policy Board member Ian Harper AO delivered this warning in a speech at the University of Melbourne, hosted by CEDA. His board tenure ends after the August RBA meeting, making this one of his final public assessments.

Harper was direct: the current inflation problem isn't simply a Middle East story. "Inflation took off again back in the other direction, and all of that was before the Middle Eastern conflict," he said — pointing to a pickup in aggregate demand and the re-emergence of domestic supply constraints as the underlying drivers before any oil shock arrived.

The oil shock has since layered on top. Harper explained the direct impact: fuel makes up 3.5 per cent of the CPI basket, so sustained oil price rises feed straight into headline inflation. The second-round effects concerned him more — higher fuel costs spreading through "a whole range of other activities" across the economy.

Consumption accounts for around 60 per cent of economic output. As fuel prices squeeze household real incomes, spending falls, growth slows, and the labour market softens. The RBA faces a difficult combination: inflation staying elevated while the broader economy cools.

Why Inflation Expectations Are the Real Warning

The most significant part of Harper's speech was his commentary on long-term inflation expectations — specifically what market-based measures over a three-year horizon are now showing.

"The three-year market measure looks like it's saying, well, over that period we expect to be outside the bank's target range," he said. "Inflation expectations are important, and the RBA pays very close attention to inflation expectations, and these results are concerning."

When households and businesses start expecting high inflation to persist, their decisions — wage demands, pricing, investment choices — can entrench the very problem the RBA is trying to solve. Harper was explicit about what unanchored expectations demand: "If there is a risk that long-term inflation expectations are becoming unanchored, then that requires strong action."

The RBA's own published forecasts underscore how long this battle may take. According to Harper, the bank projects that the underlying rate of inflation won't return to the 2–3 per cent target band until 2027, and won't reach the midpoint of that band until 2028. "We expect inflation to be with us for a while," he said.

What This Means for Your Home Loan

The RBA acknowledges it can't directly stop an oil-driven price shock. What it can do — and what Harper says the board is committed to — is prevent those shocks from becoming embedded in wages and costs. "The Monetary Policy Board is charged with ensuring that those effects do not become embedded in the Australian economy," he said.

That mandate means the board will hold restrictive settings for as long as inflation expectations look shaky. With the three-year market measure already signalling expectations above the target range, there is no clear trigger for aggressive near-term easing.

Some practical steps worth taking now:

**Compare your rate.** Even in a high-rate environment, lenders compete — and loyalty doesn't always pay. Browse the [cheapest home loans on the market](/home-loans/cheapest) to see where your current rate stacks up.

**Model what refinancing could save you.** If you haven't refinanced since rates started rising, you may be paying more than necessary. Our [refinance savings calculator](/calculators/refinance-savings) shows what switching to a lower rate could save over your remaining loan term.

**Check your borrowing power.** If you're planning to purchase, elevated rates for longer directly affects how much a lender will offer. Use our [borrowing power calculator](/calculators/borrowing-power) to plan under current conditions.

**Investors: review your cash flow.** Higher rates for longer changes the equation on investment property returns. Explore [investor home loan options](/home-loans/investor) to make sure your financing structure still stacks up.

The Timeline to Watch

Harper pointed to 2027 as the earliest the RBA expects underlying inflation to return to the target band, with the midpoint not expected until 2028. If quarterly CPI data comes in meaningfully softer than those projections, the tone from the RBA could shift. If inflation runs hotter, the risk of further tightening rises.

For now, the prudent move is to stress-test your budget against an extended period of current rates — and to make sure you're on a competitive product while you wait.