Reserve Bank governor Michele Bullock says she is aware that more people than usual are seeking help from community organisations as Australia's economy slows down and unemployment rises.

She says lower-income borrowers are over-represented in the group of people who are "really struggling" right now.

And the number of owner-occupiers with variable-rate mortgages who are in a "particularly challenging situation" is also rising, but the RBA is doing what it can to bring inflation down, re-balance the economy and return people's lives to some kind of normality, she said.

"I understand that the board's message on interest rates is not what many borrowers want to hear," Ms Bullock said.

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

"And as labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours.

"Information received through the RBA's liaison program indicates that more people than usual are seeking support from community organisations, and often for the first time.

"This is why it is imperative that we return inflation to levels that mean it is in the background again — at which point it will no longer be distorting our economy," she said.

Fight against inflation will take years

Ms Bullock made her comments in a speech to the Anika Foundation in Sydney on Thursday afternoon.

Her speech had the title: The Costs of High Inflation.

Her comments came a day after new data showed Australia's economy was growing at its slowest pace since the 1990s recession, as households cut back significantly on spending.

The economy grew by 0.2 per cent in the June quarter, and by just 1 per cent over the last year, according to the Australian Bureau of Statistics (ABS).

The severe slowdown in economic activity occurred after the Reserve Bank lifted interest rates 13 times since mid-2022 to squeeze high inflation out of the economy.

Underlying inflation is currently running at an annual pace of 3.8 per cent, which is still above the RBA's target of 2.5 per cent.

On Thursday, Ms Bullock said if the engineered economic slowdown kept tracking as the RBA anticipated, inflation could be sitting around 2.5 per cent by the end of 2026.

However, she said the RBA would release its next Financial Stability Review in a few weeks, and it would show how the attempt to drag inflation down had put more households under financial strain recently.

"For owner-occupiers with variable-rate loans (which is a subset of all borrowers), we estimate that around 5 per cent are in a particularly challenging situation, where the combined total of their essential spending and scheduled mortgage repayments is more than their income — that is, they have a 'cashflow shortfall'," she warned.

See the graph below.

"Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments," she said.

"This includes things like cutting back on their spending to the more essential items, trading down to lower-quality goods and services, dipping into their savings or working extra hours.

"Some may ultimately make the difficult decision to sell their homes.

"A really important point to note here is that lower-income borrowers are over-represented in the group of people who are really struggling," she said.

We need to crush inflation. Renters won't get much relief in short term

Ms Bullock said the "key drivers" of high inflation in Australia at the moment were housing costs and market services inflation, and renter households would not get any relief for a while.

"On the housing side, this reflects both construction cost growth and strong increases in rents," she said.

"Year-ended growth in advertised rents is still high, reflecting pressure from a rebound in housing demand and limited supply response.

"Rents on new leases take time to impact overall consumer price inflation (CPI) rents because only a small share of the stock of rental properties update leases in a given month and so CPI rents inflation is likely to be high for some time."

See the graphic below.

"New dwelling inflation has declined from its earlier peak as materials costs have eased, but it remains elevated.

"There is still a large pipeline of work and ongoing labour shortages for certain trades," she said.

But Ms Bullock said it was extremely important to get rid of the high inflation in the economy because the longer it persisted, the more damage it could cause in the long term.

"We know the restrictive monetary policy settings that are necessary to bring inflation down are causing hardship to some households and businesses. We are very conscious of that," she said.

"Inflation has not been as high as it has been recently for a few decades and I think many people have forgotten how bad it is — people under the age of 40 will not have experienced high inflation until the last few years.

"There is a reason why there is so much talk about the cost of living — high inflation hurts everyone, and especially the most vulnerable.

"It reduces what people can buy with their wages, erodes the value of savings and it disproportionately hurts those on low or fixed incomes.

"This is why it is imperative that we return inflation to levels that mean it is in the background again — at which point, it will no longer be distorting our economy," she said.