Reserve Bank governor Michele Bullock says more families face “cashflow shortfalls” due to high mortgage bills, but interest rate relief is still unlikely until inflation falls further.

Bullock told an Anika Foundation lunch on Thursday that inflation was hurting everyone, but particularly those on lower incomes who struggled with higher prices and were eating into savings.

The highest interest rates in more than a decade are also squeezing many lower-income families, Bullock admitted, sparking “cashflow shortfalls” where incomes are lower than essential bills.

“I understand that the board’s message on interest rates is not what many borrowers want to hear,” Bullock said, referencing RBA views that cuts are unlikely this year.

“Those with mortgages are feeling the squeeze on their cashflows not just from high inflation, but also from the increase in interest rates that has occurred in response to it.

“As labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours.”

The RBA faces growing pressure on the timeline for interest rate cuts as the economy slows amid the battle to curb inflation, with data this week showing GDP rose a meagre 0.2 per cent in the June quarter.

There was also a media fracas earlier this week when Treasurer Jim Chalmers said high rates were “smashing the economy”, which was erroneously reported as a criticism of the RBA.

Bullock declined to comment on Chalmers’ characterisation on Thursday, saying he was “doing his job and I’m doing mine”.

“People are hurting from high interest rates, I do understand that,” Bullock said.

“[But] it’s actually high inflation that is really causing trouble for people, and causing trouble for the most vulnerable.”

The RBA wants to see more evidence that inflation – particularly price growth for services and housing – is easing back to its 2 to 3 per cent target before cutting rates.

That’s a slower timeline than many other nations. But Bullock said the RBA was trying to walk a “narrow path” that tolerated above-target inflation for longer to preserve jobs growth.

But there’s still considerable uncertainty over the path for inflation, which the RBA predicts will fall back to the top of its target band late next year and to the middle in 2026.

Bullock outlined possible scenarios where inflation could even be much higher, which could spark further interest rate hikes, though this is not the central case economists expect.

“If the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term,” Bullock repeated on Thursday.

She said price growth for so-called market services – including things like dining out and recreational activities – remained the biggest contributor to sticky inflation.

Another pain point is housing, with rents still increasing rapidly despite some recent easing.

“The key takeaway here is that domestic capacity pressures, in both housing and market services, are contributing to above-target inflation,” Bullock said.

“At an aggregate level, there is further to go. With underlying inflation having fallen very little over the past year in quarterly terms, the board is vigilant to upside risks.”