Sarah Hunter: 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.
In her address to the Australian Conference of Economists, Assistant Governor (Economic) of the Reserve Bank of Australia, Ms Sarah Hunter, highlighted the complexities of maintaining inflation within the 2-3 percent band and ensuring sustained full employment.
Hunter explained that the Reserve Bank's mandate requires it to consider various economic forces that influence the economy's productivity, aggregate demand, and costs and inflation. Despite the multitude of factors at play, she proposed a simplified top-down view to better understand these elements.
This view is illustrated in Figure 1, which represents the two primary components of the RBA's mandate. The vertical axis of the graph indicates inflation, with a dashed line marking the midpoint of the target band at 2.5 percent. The horizontal axis represents conditions in the labour market and the broader economy.
To the right of the vertical line, the economy is depicted as having spare capacity, and the labour market is operating below full employment. Conversely, on the left side of the line, the economy is portrayed as operating beyond its sustainable capacity, with a tight labour market.
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