IMF sees inflation above RBA target through 2027

The International Monetary Fund (IMF) has projected Australia's inflation to ease to 3.1% in 2027 from 3.9% this year, leaving it outside the Reserve Bank of Australia's (RBA) target range of 2% to 3%.

The IMF's latest World Economic Outlook (WEO) estimates average inflation across advanced economies will fall to 2.7% next year, below Australia's projected rate.

The IMF also projects Australia's real GDP growth to slow from 1.9% this year to 1.6% in 2027, below the 1.8% forecast for advanced economies on average.

The RBA raised interest rates by 25 basis points to 4.6% at its September meeting, with the board unanimously voting in favour of a rate hike after concluding several inflation risks it had flagged in August materialised.

In the RBA Minutes, board members said executing their policy in an environment of more persistent adverse supply shocks would require accepting slower growth in demand and employment than would otherwise be the case.

The view aligns with that of the IMF which said that policy stance should be sufficiently restrictive to return inflation to target.

"Monetary policy should remain firmly focused on price stability, in line with central banks' mandates. The policy stance should be sufficiently restrictive to return inflation to target in a timely fashion, preventing second-round effects," the report read.

"Where commodity price increases and technology-related investment (or other factors) add to persistent inflationary pressures, monetary policy will need to tighten further.

"Starting levels of inflation, labour market tightness, and technology and commodity exposures remain key policy guideposts. The appropriate stance will differ across countries, but the objective is the same: to ensure price stability. Central bank independence is instrumental in achieving that goal."