Highlights

  • The September 2026 decision statement said the Board remains focused on ensuring high inflation does not become "embedded".
  • Embedded inflation means price rises stop being driven by a specific shock and start feeding on expectations of further rises.
  • Energy prices running 13% above August forecasts represent a temporary shock that carries embedded risk if it passes through broadly.
  • Board minutes say members considered it prudent to reinforce the anchoring of expectations through the September decision.

A small word is carrying significant weight in the RBA's recent communications. "Embedded" appears in the Board's September 2026 decision statement, its minutes, and the Governor's speeches. Understanding what it means explains why the Board has been raising rates even as unemployment rises and household budgets tighten.

What "Embedded" Means in Central Banking

In central banking language, inflation becomes embedded when it ceases to be a response to a specific shock and starts feeding on itself. Businesses raise prices because they expect costs to keep rising. Workers seek higher wages because they expect prices to keep rising. Those expectations become self-fulfilling. The result is inflation that persists without any ongoing external shock to sustain it.

The September decision statement made the distinction explicit: "The Board remains focused on ensuring that high inflation does not become embedded." This language reflects concern that today's elevated inflation, driven partly by an energy shock, could shift from a temporary phenomenon to a structural one if expectations become unanchored.

The Energy Shock and Pass-Through

The Board's September minutes recorded that petrol and diesel prices were 13% above the August Statement on Monetary Policy forecasts. In her Senate statement on 28 October, Bullock said: "Oil and related prices have increased sharply again and will add materially to inflation."

On its own, a commodity price shock might be something a central bank could look through. But the Board noted that "higher fuel prices have partially been passed through to prices of other goods and services." This pass-through is the early signal of embedding: the energy shock is not staying isolated in petrol prices but spreading into other categories.

Anchoring Expectations

The September minutes recorded that members "considered it prudent to reinforce the anchoring of expectations" through the rate decision. Expectation anchoring means that households and businesses continue to believe inflation will return to target even during a period of elevated readings. When expectations become unanchored, the central bank's task becomes much harder.

Bullock told senators that inflation is likely to remain elevated "for some time." The Board's view is that acting now, while expectations are still reasonably well anchored, costs less in economic disruption than waiting until embedding is well advanced.