Australia’s inflation picked up in H2 2025 and was “too high,” according to the Reserve Bank’s February meeting minutes. While much of the rise in underlying inflation was seen as temporary, members judged some of it reflected persistent pressures. As a result, the central inflation forecast was revised materially higher, with inflation projected to stay above target through 2026 and only return close to the midpoint around mid-2028, assuming the cash rate follows the market path. Model estimates suggested spare capacity had narrowed, with aggregate demand exceeding supply and the labour market staying a bit tight. Solid output growth, resilient global conditions, and still-elevated unit labour costs reinforced capacity pressures. Members also worried that financial conditions were no longer restrictive enough. Overall, they agreed there was a stronger case to raise the cash rate by 25bps, as inflation risks had increased and downside risks to full employment had eased.