Reserve Bank of Australia Governor Michele Bullock said the monetary policy board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed as it assesses how higher input costs and geopolitical tensions will affect inflation.

In her speech at the Anika Foundation Fundraising Lunch on Tuesday, Bullock said domestic demand has eased broadly as expected. In addition, labor market conditions have softened somewhat, but continued weak productivity growth means the economy cannot grow strongly without putting pressure on inflation, describing this as a fundamental challenge for the Australian economy over the next few years.

The governor said monetary policy cannot address the economy's slow productivity growth. Meaning that while it persists, the ability of the economy to grow without generating inflation is constrained, and Australians will continue to experience limited real wage growth.

Bullock said the full effects of earlier cash rate increases will take time to materialize, and that even if the renewed disruption to oil supply abates quickly, underlying inflation is still expected to be higher as fuel price rises flow through to other prices.