Reserve Bank of Australia governor Michele Bullock says rising inflation risks are materialising, potentially requiring another interest-rate increase at the board’s late-September meeting. Although economic growth is slowing, inflation remains too high and may take longer than expected to return to the bank’s target range, increasing pressure on households and businesses.

The RBA had forecast inflation would return to the middle of its target range by the end of 2027, but the outlook has worsened. The Middle East conflict, higher oil prices, extreme weather and strong demand linked to the artificial-intelligence boom are raising costs, while businesses may pass more of these increases on to consumers. Financial markets put the chance of a September rate rise above 80 per cent, as the IMF separately urged Australian governments to reduce spending amid borrowing costs at a 15-year high.