Key Highlights

  • The RBA's projections show Inflation coming down over time.
  • The same projections show weaker growth, reaching 1.3 per cent by late 2027.
  • Unemployment is projected to rise steadily as growth slows.
  • Lower inflation comes at the cost of a softer economy.

Lower inflation rarely comes for free. Read side by side, the Reserve Bank of Australia's (RBA) November 2026 forecasts make the trade-off explicit. In the same period that underlying inflation is projected to fall from 3.5 per cent to 2.9 per cent, GDP growth is projected to slow to 1.3 per cent, below the 1.6 per cent pencilled in three months earlier.

The Statement on Monetary Policy (SMP) released on 3 November forecasts year-ended GDP growth of 1.3 per cent in December 2027, and again in June 2028. Over the same horizon, the Unemployment rate is projected to climb towards 5 per cent.

The numbers side by side

The RBA's forecasts, with the August forecast in brackets, show how growth, jobs and inflation are expected to move together (all figures in per cent, for the same five dates):

  • GDP growth: 1.6 (1.4) in December 2026; 1.6 (1.5) in June 2027; 1.3 (1.6) in December 2027; 1.3 (1.6) in June 2028; 1.5 (1.8) in December 2028.
  • Unemployment rate (quarterly average): 4.7 (4.5); 4.8 (4.6); 4.9 (4.7); 5.0 (4.8); 5.1 (4.8).
  • Trimmed-mean inflation: 3.6 (3.3); 3.5 (3.0); 2.9 (2.6); 2.5 (2.4); 2.4 (2.4).

Two features stand out. First, growth was revised up for the near term but down from late 2027 onwards. Second, every unemployment forecast is higher than in August, with the end-2028 rate about ¼ percentage point above the earlier projection.

Why growth holds up now, then slows

The near-term upgrade reflects activity this year that the SMP describes as somewhat stronger than expected, helped by data centre investment. The RBA now estimates year-ended growth at 2.1 per cent for June 2026, compared with 1.9 per cent in August.

The downgrade from mid-2027 has a clear explanation in the SMP: weaker housing and a higher cash rate path are a key reason for lower GDP growth from that point. Dwelling Investment growth is forecast at -2.8 per cent in December 2027 and -1.8 per cent in December 2028. The Monetary Policy Board's statement notes that "falls in housing prices and turnover are expected to weigh on growth in dwelling investment".

Household spending is also subdued. Consumption growth is forecast at 1.4 per cent in December 2026, rising only to 1.6 per cent by December 2028, and the SMP describes household consumption as a key drag on growth.

The forecasts are built on a cash rate path from market pricing as at 28 October 2026. That pricing implies the cash rate rises about 35 basis points by mid-2027, up to 50 basis points above the August path, and then stabilises at 4.8 per cent in 2028. The RBA judges this path to be restrictive. It is a market-based assumption, not an RBA commitment.

On 3 November, the Board lifted the cash rate target by 25 basis points to 4.85 per cent, the fifth increase in 2026. The statement noted: "The increases in the cash rate target since the beginning of the year have tightened financial conditions."

Below trend, by design

The SMP says growth is expected to remain below trend. That matters because an economy growing below its trend pace tends to see spare capacity open up, which in turn eases pressure on wages and prices.

The RBA's view of the economy's speed limit is a large part of why it accepts slower growth. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation."

In practice, the trade-off shows up most clearly in the labour market. Unemployment was 4.7 per cent in September 2026 and averaged 4.6 per cent in the September quarter, above the 4.4 per cent the RBA had forecast in August. The SMP says part of the rise reflects more people joining or staying in the labour force; the participation rate of 66.9 per cent in the September quarter was above RBA expectations.

The Board's statement framed it this way: "Employment is expected to continue to grow, but the unemployment rate is projected to rise by more than expected in the August forecasts."

Wage growth is also forecast to ease, though less than earlier expected. The Wage Price index is forecast at 3.4 per cent in December 2026, 3.2 per cent in December 2027 and 2.9 per cent in December 2028, all revised higher than in August.

What the Board is weighing

The RBA's mandate is twofold. As the Board's statement put it, "the Board is focused on its mandate to deliver price stability and full employment." The November forecasts show the tension between those goals: inflation above target, and unemployment drifting higher.

The majority of the Board judged that inflation was the more pressing concern, saying "there is an increasing risk that higher inflation expectations will become embedded" and that "a further tightening in financial conditions is warranted to support the return of inflation to target." Six members voted for the increase and three voted to hold at 4.60 per cent. The statement does not give the minority's reasons.

The SMP sets out a downside activity scenario in which households and businesses respond more strongly to higher oil prices, interest rates and falling house prices. In that case, GDP would be about 1.0 per cent lower by end-2028 and unemployment 0.3 percentage points higher, with inflation only modestly lower.

That scenario highlights an uncomfortable possibility: a weaker economy without much extra progress on inflation. The RBA also notes capacity uncertainty cuts both ways. Pressures may be understated, or labour Supply may be stronger, pushing unemployment higher.

The bottom line

The RBA's November forecasts show GDP growth slowing to 1.3 per cent by December 2027, down from 1.6 per cent in the August projections, as weaker housing and a higher assumed cash rate path weigh on activity. Unemployment is projected to rise to 5.1 per cent by the end of 2028.

In exchange, underlying inflation is forecast to fall from 3.6 per cent at the end of 2026 to 2.5 per cent by mid-2028. Those are forecasts resting on market pricing at 28 October, and the Board has said it "will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions." Its next decision is due on 8 December 2026.