In remarks that pour cold water on speculation interest rates could begin to come down before the middle of the year, the RBA governor said the central bank would want to be very sure inflation would slow to within its target band before easing monetary policy.

"We need to be very confident that it will get there," she said.

Investors currently put a one-in-five chance of a rate cut at the Reserve Bank board's next meeting on March 18 and 19 and expect the official cash rate, currently at 4.35 per cent, to drop to 3.85 per cent by the end of the year.

Making her first appearance before the House of Representatives economics committee as central bank boss, Ms Bullock said recent progress in lowering inflation had been "encouraging" but price pressures were "still too high".

She told the committee even if the economy evolves in line with the RBA's expectations, inflation would still have been above the target range for four years.

"The longer inflation remains high and outside the target range, the greater is the risk that inflation expectations of households and businesses adjust higher," the central bank leader said.

"And if that happens, then the risks of inflation becoming entrenched at a higher level rise. This is the balancing act that the board is focused on."

Evidence of an economic slowdown is building.

Household spending grew by just 2.3 per cent in year to December, the weakest pace in almost three years, driven by falls in expenditure on discretionary items like furniture, appliances, carpets and other household goods.

Reflecting this, business turnover fell in more than half of industries tracked by the Australian Bureau of Statistics in December, with the biggest declines in those sectors most directly exposed to household spending.

ABS head of business statistics Robert Ewing said turnover among retailers fell 3.3 per cent and for wholesalers 3.1 per cent.

Commonwealth Bank economist Gareth Aird said weak demand had driven growth in the cost of discretionary goods and services down to 2.4 per cent in the December quarter while the cost of essentials, including rents, electricity and insurance, was still rising at 4.8 per cent.

Encouragingly for tenants, central bank officials told the parliamentary committee hearing rents "will be peaking" during 2024.

Ms Bullock said aggregate demand in the economy was lowering, but still remained greater than the economy's supply capacity.

She said goods prices were falling quickly but the cost of services was coming down more gradually, slowing the overall rate of decline of inflation.

"While there are some encouraging signs, Australia's inflation challenge is not over," Ms Bullock said.

"An inflation rate with a '4' in front of it is not good enough and still some way from the midpoint of our target."

"While we don't necessarily need services inflation to be at the midpoint of the 2 to 3 per cent range to meet our target, we do need it to be quite a bit lower than it currently is."

Ms Bullock said central banks around the world, including the RBA, were wary about beginning to ease monetary policy too soon.

"Central banks around the world are cautious. They are not ready to say 'job done' yet," she said.

"That's because of the lags in monetary policy. They want to see the data and they want to be convinced that [inflation is] actually heading sustainably back into the [target] band.

"It's no good just to go in and then pop out again. We've got to be convinced that we're back in the band."

In its assessment of the economy released on Tuesday, the RBA said the risks to monetary policy between between keep rates high for too long and not having them high enough were broadly balanced.

But Deutsche Bank chief economist Phil O'Donaghoe said the central bank may be misreading the situation.

Mr O'Donaghoe said just as the RBA was slow to respond to the acceleration of inflation in late 2021, it was now in danger of lagging behind its fall.

The economist said underlying inflation slowed much more sharply in the last six months of 2023 than the Reserve Bank was forecasting for the first half of this year, putting it at risk of overestimating price growth and holding rates too high for too long.

"We know that back in 2022 the RBA should have taken the acceleration in inflation much more seriously," he said.

"Fast forward to 2024, is the same lesson about to be learned again, only this time in the other direction?"

Rather than leaving the gate open to more rate hikes, "we would argue more emphatically that a May rate cut cannot be ruled out", Mr O'Donaghoe said.

But Ms Bullock said inflation pressures remained too widespread and the outlook too uncertain for the central bank to be comfortable yet.

"Some of the good side [of inflation] has been very kind to us," the governor said.

"But if that reverses and services inflation doesn't come down enough, then we're not going to be reaching our [target] band."