The figure has remained steady since December last year, with no rate cuts on the cards as the RBA monitors underlying inflation.

Governor Michele Bullock on Tuesday said the important measure, which is currently at 3.5 per cent, is still too far away from the midpoint of the target 2-3 per cent band.

"The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026,"she said in a statement.  

"The Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain."

Ms Bullock also referred to other measures which assisted the RBA in its decision, including the latest GDP figure which showed the "slowest pace of growth since the early 1990s" outside of the COVID-19 pandemic. 

The economy grew just 0.8 per cent in the year to September in dire figures released last Wednesday, which sparked speculation an interest rate cut was unlikely.

"A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised," Ms Bullock said.

In October the unemployment rate was 4.1 per cent, up from 3.5 per cent in late 2022.

Despite this, Ms Bullock said the employment "grew strongly" over the three months to October, with the participation rate "close to record highs, vacancies are still relatively high and average hours worked have stabilised". 

Sky News Business Editor Ross Greenwood said the new data was "consistent" with the RBA's forecast but the board appeared to be "gaining some confidence" inflation was moving towards the target bracket.

"Just a message from this immediately is that the Reserve Bank is starting to give more what I’d call conciliatory language about the prospect of inflation starting to come down, underlying inflation," he said. 

“And therefore you’d imagine in the future there may be some view that there could be opening a door for interest rates to come down.

“Possibly not before the federal election, not in time for the government to be able to lay claim and credit for that but certainly now saying that there is some suggestion that inflation is moderating in Australia’s economy.”

Treasurer Jim Chalmers celebrated the RBA’s apparent “confidence” inflation was falling as he praised the government’s efforts in decreasing economic pressures.  

“I've been focused on my job, which is fighting inflation without ignoring the very substantial risks to growth,” he said at a media conference on Tuesday.

“I note in the Reserve Bank statement that they talk about how inflation has fallen substantially and that the board is gaining some confidence that inflationary pressures are declining.

“This has been our focus as a government. We know that people are under cost-of-living pressure, and that's our primary focus as a government.”

However, Ms Bullock told reporters that while inflationary pressures were decreasing, risks remained as recent economic data had been “mixed”.

“The board judges that monetary policy remains restrictive and is working as anticipated,” she said.

“We discussed today that perhaps some of those upside risks to inflation appear to have eased but they haven’t gone away.

“The board still assesses that the level of aggregate demand is above the economy supply capacity even though that gap is closing.”

Ms Bullock said the board will be referring to the data over the coming month or so to determine if inflation and the economy evolved as expected.

“The board needs to be confident that inflation is moving sustainably towards the target and for this to occur, we need to see more progress on underlying inflation coming down,” she said.

It came after the RBA opted to leave the cash rate on hold at 4.35 per cent in November as it projected the underlying inflation rate won’t be back to its target band until 2025.

The ABS’ latest quarterly inflation report found headline inflation dropped from 3.8 per cent to 2.8 per cent for the 12 months to the September quarter while underlying inflation fell from four per cent to 3.5.

Ms Bullock said at the time despite the drop in the headline measure, which was helped by government rebates, the underlying inflation rate was what mattered when it came to considering rate cuts.

It comes as a new tranche of reforms in 2025 will see the RBA function with two separate boards, one focusing on monetary policy, including interest rates, and the other on governance.