Ahead of a crucial inflation print, RBA governor Michele Bullock said underlying inflation had evolved broadly as expected since May.
"But it is still too high," she said in a speech on Tuesday to the Anika Foundation Fundraising Lunch in Sydney.
After three rate rises since February, the labour market had eased somewhat and demand growth had been moderating, Ms Bullock said.
But further easing in demand was needed to bring inflation sustainably back to target.
"A key question in the period ahead is whether the tightening in monetary policy earlier in the year is sufficient to achieve this," she said.
"The board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed."
Ms Bullock's warning came as oil markets continued to be mired in volatility.
Global benchmark Brent crude fell back below $US90 a barrel on Tuesday, having less than a week earlier edged above $US100.
In a briefing provided to Treasurer Jim Chalmers at the weekend, Treasury said the recent re-escalation in the conflict between the United States and Iran meant oil prices were likely to stay elevated in the short term.
The breakdown of a memorandum of understanding between the two sides showed the underlying dispute over control of the Strait of Hormuz remained unresolved, the department said in a submission released by the treasurer's office.
That left the market exposed to repeated cycles of escalation and de-escalation.
While oil prices neared $US120 a barrel during the original outbreak of fighting, the current situation is arguably even more perilous.
Strategic reserves have already been significantly drawn down, reducing available oil and fuel buffers, while recent attacks by Iran-backed Houthi militias in the Red Sea threatened to shut down routes used to bypass Hormuz, Treasury said.
Dr Chalmers said the recent escalation posed a "substantial threat to global inflation".
The government's temporary reduction of the fuel excise has helped support household spending, Ms Bullock said in her speech.
But Australians were still suffering from diminished living standards as a result of successive negative supply shocks since the pandemic, worsened by a backdrop of weak productivity growth.
"Reversing that is central to improving Australians' living standards over the longer term," she said.
Business investment, especially in new technologies like artificial intelligence, will be crucial. But the size and timing of the impact it might have remained shrouded in uncertainty.
Addressing the economy's slow productivity growth was out of the Reserve Bank's control, Ms Bullock said.
"While this persists, the ability of the economy to grow without generating inflation is constrained, and Australians will continue to experience limited growth in real wages," she said.
Headline inflation eased to four per cent annually in March, partly due to lower-than-expected oil prices and the government's 32c a litre cut to the fuel excise.
But the trimmed mean, which the Reserve Bank pays more attention to, was still too high at 3.6 per cent, HSBC chief economist Paul Bloxham said.
The trimmed mean for the June quarter is expected to nudge even higher in figures to be released by the Australian Bureau of Statistics on Wednesday.
The Reserve Bank, which will hand down its next rates decision on August 11, could look at those numbers and decide that more tightening is needed to get inflation under control.
"The key questions are: is the growth downturn under way enough to believe that inflation is expected to head back to target soon; and will it be soon enough, given core inflation has been above target for four years already?" Mr Bloxham said.
"The first question is a tricky calibration exercise; the second is a judgment call about the RBA board's level of patience.
"Both are uncertain."
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