Expert Advisory Group – Summary of Discussion

3 June 2026

Key points of discussion

The advisory group provided views on the following three questions:

1. How is the energy price shock likely to affect activity and inflation in Australia?

• Participants began by discussing the implications for Australia of alternative scenarios for the transit of oil through the Strait of Hormuz. The discussion highlighted the extent of uncertainty about how such scenarios might affect global fuel prices and the world economy. Participants distinguished between the implications of a situation in which global markets continued to clear, albeit at higher prices; and a situation in which quantitative restrictions began to bind. Some participants viewed the energy market as likely to be permanently changed by the current conflict. Many participants expressed concerns about the potential implications for inflation, which has been high around the world.
• The discussion turned to how spending by Australian households and businesses was responding to the rise in oil prices to date. Participants noted that timely indicators were implying reasonably resilient household demand so far – across a wide range of households – supported in part by strength in real household disposable income growth over the year prior and by federal and state government policies aimed at cushioning the impact of the global shock. Participants discussed the contrast with sharp falls in survey measures of consumer sentiment. Some participants downplayed the importance of these measures for spending, noting the correlation between the two had been typically weak historically. Others qualified that historical finding, noting that large declines in sentiment had been more predictive of future downturns than small movements. Regarding the business sector, participants noted signs that activity was also generally proving resilient, though with a little more weakness among fuel-intensive sectors. Participants noted that energy-exporting firms in Australia stood to gain from higher global energy prices, although the impact of this on domestic demand would be muted by the fact that the marginal propensity to spend higher profits accruing to energy firms is typically quite low.
• Several participants expressed concerns about the impact of higher energy prices on costs, notably in the construction sector. They pointed to reports of significant price rises, shortages of certain products and evidence that the pass-through to some prices had been unusually quick and broadly based. Participants noted that these pressures would be amplified if global demand proved resilient while global oil supply remained constrained.

2. What are the other main risks to the Australian economic outlook that could materially affect the course of monetary policy over the next six to 24 months?

• Participants discussed the possible drivers of the recent softening in the housing sector, including higher interest rates, proposed changes to the taxation of housing and uncertainty stemming from the Middle East conflict. They noted that there is considerable uncertainty about the outlook for activity in the established housing market, the relative demand for new versus established housing, and the flow-on implications of that for consumer spending. Some participants argued that strong underlying demand for housing may limit the extent of any possible downturn.
• Participants highlighted various risks to the labour market. Some raised concerns that there was already more underutilisation of labour than commonly assessed, and highlighted falls in youth employment as a concerning indicator. Participants also debated both how likely and how problematic a slowing in non-market employment growth would be. Some argued that any slowing, to the extent it ensued, could help alleviate excess labour demand in market service industries, while others expected this could have a larger impact and lead to the emergence of material spare capacity.
• Participants also cited a range of other risks, including: the potential for inflationary pressures to remain elevated if capacity pressures and weak productivity growth are not addressed in a sufficiently timely manner; global geopolitical risks; the potential risks of a sharp adjustment in global financial prices if the AI boom proves to have bubble-like characteristics and/or a there is a sharp rise in global bond yields in response to sovereign debt risk overseas; and the effects of heightened income dispersion.

3. What are the likely effects of artificial intelligence on the Australian economy over the medium term?

• Participants began by discussing their expectations for how transformative AI technology may prove to be for Australia’s economic performance. There was widespread agreement on its potential, but a number of participants emphasised that most Australian firms are relatively early in the adoption cycle. The true implications would only emerge as firms moved from broad-based experimenting with basic AI tools to targeted investment in high-value use cases and staff training at all levels. Participants also observed that use of the technology could change significantly as firms begin to factor the marginal cost of using AI tools throughout their businesses. It was noted that household adoption of paid AI tools was more evenly spread across income levels than adoption of the internet had been at a comparable stage of development, which was potentially promising for future patterns of equality.
• Regarding the effect of AI on productivity, participants noted that there is little evidence yet in other countries that AI has boosted total factor productivity (TFP). Indeed, several argued that it was likely that TFP could even decline for a period as businesses experiment with the technology. However, there was general agreement that AI will enhance TFP over the longer term, including as older and less innovative firms are displaced by start-ups.
• Turning to what this implies for employment, participants noted that TFP gains could be used to: (i) expand output; (ii) reduce labour demand; or (iii) facilitate workers choosing to enjoy more leisure. They noted that the balance between these three options would be influenced by corporate decisions and policy responses to AI. Participants noted that AI did not so far appear to have resulted in large job losses. They observed that firms and workers have chosen so far mostly to use any spare time arising from productivity gains to do additional work that would otherwise not have been possible. They also pointed to various factors (e.g. a desire for ‘human touch’) that historically have limited full-scale adoption of potential automation possibilities.
• Participants highlighted the potential inflationary effects of the AI boom in the short-to-medium term, including because of the need to build extensive utilities infrastructure to support AI.

Attendees

The following people participated in this meeting:

Sally Auld, NAB; Jeff Borland, University of Melbourne; Saul Eslake, Independent economist; Ben Jarman, J.P. Morgan; Alex Joiner, IFM Investors; Gianni La Cava, e61 Institute; Guay Lim, University of Melbourne; Lisa Magnani, Macquarie University; Jo Masters, Barrenjoey Capital Partners; Phil O’Donaghoe, Deutsche Bank; Luke Yeaman, CBA

Monetary Policy Board members participating

Michele Bullock (Governor and Chair), Andrew Hauser (Deputy Governor and Deputy Chair), Marnie Baker AM, Renée Fry-McKibbin, Ian Harper AO, Carolyn Hewson AO, Bruce Preston, Iain Ross AO, Jenny Wilkinson PSM

Other participants

Sarah Hunter (Assistant Governor, Economic), Christopher Kent (Assistant Governor, Financial Markets)

David Norman (Deputy Secretary)