RBA not concerned about stagflation or wage-price spiral

RBA governor Michele Bullock says global central banks have learned lessons from the 1970s. (ABC News: Supplied)

RBA governor Michele Bullock says the war in the Middle East is creating a "highly uncertain" environment that could see inflation rising even higher than anticipated.

But she is not concerned about stagflation occurring in Australia, nor a wage-price spiral.

The RBA Board's next two-day monetary policy meeting will be held on June 15 and 16.

Reserve Bank governor Michele Bullock says the war in the Middle East is creating a "highly uncertain" environment that could easily contribute to even higher global and domestic inflation than anticipated.

She said the conflict's potential impact on Australia's economic activity was less certain, but RBA staff expect it to "weigh modestly" on growth this year.

"This would worsen the trade-off between inflation and economic activity," she warned.

Australia's economy grew at an annual rate of 2.5 per cent in the March quarter, the same as in the previous quarter.

But Ms Bullock said she was not concerned about "stagflation" occurring in Australia at this point.

Stagflation is a situation where economic activity is stagnating and you're dealing with high inflation (stagnation + inflation). It is a damaging phenomenon that can be accompanied by rising unemployment and recession and a host of other problems.

She said she also wasn't concerned about a wage-price spiral occurring either.

A "wage-price spiral" refers to a scenario in which workers repeatedly and quickly secure higher wages as inflation keeps rising. It creates a damaging feedback loop that exacerbates inflation. It was one of the major contributors to stagflation in Australia in the 1970s.

RBA governor Michele Bullock (centre) appears before today's Senate Economics Legislation Committee. (Source: Australian Parliament House)

In April, RBA deputy governor Andrew Hauser had told an audience in New York that there wasn't a lot the RBA could do to stop inflation rising in the short term.

But he said the "big question" for the RBA was how the current global energy shock, and the coming wave of inflation, would impact economic activity in Australia and how it would feed into inflation over the next two to three years.

RBA deputy governor Andrew Hauser says stagflation is a "central banker's nightmare" and the coming months will be challenging for Australia.

"The stagflationary shock: inflation up, activity down. Judging the balance between those two is, I guess, how we earn our money."

But in the Senate estimates hearing on Thursday,