Risks Partly Materialised: How August's Upside Scenario Became September's Reality

Aditi Sarkar

29 October 2026 09:03 PM AEDT

Risks Partly Materialised: How August's Upside Scenario Became September's Reality

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Highlights

The August 2026 SMP projected inflation returning to the target midpoint and assessed risks as skewed to the upside.
By September, the Board stated that some of the upside risks flagged in August had materialised.
Petrol and diesel prices were 13% above the August forecasts at the time of the September Board meeting.
The Board also found excess demand was greater than previously assessed and June quarter output stronger than expected.

Central bank forecasts always carry uncertainty, and the RBA's August 2026 Statement on Monetary Policy was explicit about where the risks lay: to the upside on inflation. By the time the Board met again in September, Governor Bullock was reporting that those risks had partly come true.

August: A Base Case With a Warning

The Board held the cash rate at 4.35% at its August 2026 meeting. The August SMP laid out the central forecast and stated that risks to the inflation outlook were skewed to the upside. Bullock's 28 October Senate statement described the August projection as showing inflation returning to the target midpoint, with the In Brief page of the August SMP stating early 2028.

An upside risk to inflation means the central bank is acknowledging that actual outcomes could be worse than the forecast. The forecast might be reasonable on available information while still carrying a meaningful probability of undershooting the speed of disinflation.

What Materialised by September

The Board's September decision statement opened with: "Inflation remains elevated and some of the upside risks flagged in August are materialising." The minutes used similar language: "Since August, some of these concerns had materialised."

The specific channels cited across the decision statement, the minutes, and Bullock's subsequent Senate statement were: energy prices (petrol and diesel 13% above August forecasts), pass-through (higher fuel prices partially passed to other goods and services), output strength (June quarter GDP stronger than expected), and excess demand (greater than previously assessed, according to the minutes).

Bullock's Senate Summary

At the Senate on 28 October, Bullock brought the story together. "At the time of the August Board meeting, we assessed that the risks to that outlook were skewed to the upside. Those risks, she told senators, have partly materialised. Her conclusion: "Inflation will therefore likely be higher than was our base case in August."

She also noted that renewed Middle East conflict pushed global energy prices well above the August assumptions, adding a geopolitical source to the domestic excess demand story. Fresh forecasts will be published on 3 November alongside the November Board decision.

FAQs

Q: What did the August 2026 SMP say about inflation risks?

A: The Board assessed risks to the inflation outlook as skewed to the upside, meaning the probability of worse outcomes exceeded the probability of better ones.

Q: Which specific risks had materialised by September?

A: Energy prices 13% above August forecasts, pass-through of fuel costs to other goods, stronger-than-expected June quarter output, and excess demand greater than previously assessed.

Q: What did Bullock tell senators about how the August scenario evolved?

A: She said the August upside risks had partly materialised and that inflation will therefore likely be higher than the August base case.

Q: When will updated RBA inflation forecasts be published?

A: On 3 November 2026, alongside the November Monetary Policy Board decision, in the new Statement on Monetary Policy.

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