The Reserve Bank of Australia says there are good prospects for economic growth in Australia that will eventually see an increase in wages and inflation.
Even so, RBA assistant governor Christopher Kent believes it will be a gradual process, with inflation unlikely to be sustainably be within the two to three per cent target band until at least 2024.
He was not concerned by the recent rise in market interest rates.
"Households and business borrowers continue to benefit from record low interest rates on most loans, their balance sheets are in good shape and the economy is benefiting from supportive fiscal policy," he told an online conference on Wednesday.
However, in the near term confidence among consumers has taken a hit from the COVID-19 lockdown, a worry for retailers.
The Westpac-Melbourne Institute consumer sentiment index fell a further 5.2 per cent in June, and has slumped 9.7 per cent in the space of two months.
Westpac chief economist Bill Evans said the initial 4.8 per cent drop followed a strong surge to an 11-year high in April and some disappointment around the federal budget, given the high expectations leading into the announcement.
"The latest fall in June is almost certainly due to concerns around the two-week lockdown in Melbourne," Mr Evans said, noting the survey was conducted during the first week of the lockdown.
"The index is now now back at the level we saw back in January when the country was impacted by significant lockdowns in parts of Sydney and Queensland."
The Melbourne lockdown is due to end on Thursday night.
Dr Kent told the KangaNews Debt Capital Markets Summit an improvement in the economic outlook, both globally and in Australia, had contributed to a rise in market interest rates to around pre-pandemic levels.
At the same time, there has been an increase in inflation expectations from very low levels that are more in line with the central bank's targets.
"The adjustments in financial markets to date are not a cause for concern," Dr Kent said.
"They don't point to inflation over the coming years sitting above central bank targets in a sustainable way."
The RBA has held its key cash interest rate at a record low 0.1 per cent since November last year.
It has repeatedly said it wants to see a sustainable rise in prices and wages before lifting interest rates, with the latter achieved by a much lower unemployment rate.
However, such interest rate support hasn't been enough for some businesses, which are feeling the pinch in the absence of support from JobKeeper wage subsidy.
Analysis by CreditorWatch has found business external administrations rose by 24 per cent over the past three months and defaults increased by nine per cent.
"We've been saying for some time we won't be able to get a true picture of the economic health of the nation until federal government stimulus measures, such as JobKeeper, have ended and their impact has stopped artificially propping up some businesses," CreditorWatch chief executive Patrick Coghlan said.
The JobKeeper scheme ended in March.
