The fight against inflation is not over, with a slower than expected decline leading to a change in official expectations for future interest rate cuts.

Australia’s largest and most representative business network said the surprise rise in inflation during the March quarter of 2024 had seen the Reserve Bank of Australia adjust its expectations.

“The RBA has lifted its Consumer Price Index forecast by half a percent in June and December 2024 to 3.8 percent. But it still expects inflation will return to the top of the target range of 2 to 3 per cent by December 2025,” ACCI chief executive officer Andrew McKellar said.

In its statement, the Reserve Bank noted that it “remains vigilant of upside risks”. Previously it was indicating that interest rates had peaked, but today it said, “the path of interest rates that will best ensure that inflation returns to target in a reasonable time frame remains uncertain.”

Annual productivity growth remains negative, despite picking up in the second half of 2023. In its statement, the Reserve Bank said solid productivity growth “needs to be sustained over time if inflation is to continue to decline”.

“If productivity growth remains weak, then it will be even more challenging to return inflation to the target range,” Mr McKellar said.

Similarly, wages growth is a key factor contributing to inflationary pressure.

“The RBA has also highlighted wage are at a level that cannot be sustained at the current low level of productivity growth,” Mr McKellar said.

In its submission to the Fair Work Commission’s Annual Wage Review, ACCI is proposing an outcome that would avoid exacerbating higher inflation.

“ACCI has recommended a 2 per cent increase in the minimum and modern award wages as reasonable and responsible, providing a wage increase that will not contribute to inflationary pressure,” Mr McKellar said.

There has been a significant change in the tone of the statement. The Reserve Bank is now indicating the next move in the interest rate may be up. Its cash rate assumption has been lifted to 4.4 per cent in December 2024, compared to an easing to 3.9 per cent in its February 2024 forecast.