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Tucked inside the Reserve Bank's 29 September decision was a 15-word sentence that helps explain why the Board moved: higher fuel prices are no longer staying at the bowser.

"Higher fuel prices have partially been passed through to prices of other goods and services."

That line, from the Statement by the Monetary Policy Board on 29 September, is easy to skim past. It sits among several observations about the global economy, energy markets and household spending. But it describes something central banks watch closely: the point at which a jump in one price starts to show up in many others.

On the same day, the Board lifted the cash rate target by 25 basis points, from 4.35 per cent to 4.60 per cent, effective 30 September. The statement said: "Today's policy decision was unanimous." It was the fourth increase of 2026. As Governor Michele Bullock put it at her media conference, the Board had raised rates three times earlier in the year, and "This is one more."

From the bowser to the broader basket

The statement sets out the chain of events in a few steps. First, the global trigger: "The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts."

Second, the persistence of that pressure: "Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation."

Third, the spillover: higher fuel prices "have partially been passed through to prices of other goods and services."

The word "partially" matters. The RBA is not saying that fuel costs have flowed fully into every other price, nor did it quantify how much has passed through. It is saying that some of the increase has already moved beyond fuel itself. The Financial Stability Review, released on 1 October, added that energy prices rose sharply again in September in response to developments in the Middle East, so the original source of pressure has not gone away.

The RBA's statement does not list the specific goods and services affected; it simply records that pass-through has begun.

Why the RBA cares about second-round effects

A central bank cannot do much about a global oil price shock directly. Raising interest rates in Australia does not add a barrel to world supply. So why does fuel pass-through feature in a decision to raise rates?

The answer lies in what the RBA has said about expectations. The Board's statement noted that "Short-term measures of inflation expectations remain elevated." At her media conference, Bullock said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions."

When higher costs in one area start feeding into many other prices, there is a risk that businesses and households begin to assume high inflation will continue, and set prices and make plans accordingly. The RBA's stated aim is to stop that from happening. Bullock told the House Economics Committee on 18 September: "Inflation is too high. We are focused on getting it back down and making sure that it does not become embedded."

She also told the committee that "A period of subdued growth of aggregate demand is needed to reduce capacity pressures and bring inflation down sustainably." In other words, the RBA's tool works on demand across the economy, not on the price of oil.

The numbers behind the concern

The August monthly CPI indicator showed headline inflation of 4.0 per cent over the year. Fuel and energy costs feed into that headline figure. Underlying inflation, measured by the trimmed mean, is lower: Bullock said it has been about 3.5 per cent for the past six months. The 4.0 per cent figure should not be confused with that underlying measure.

Both remain above the RBA's 2–3 per cent target range, where the bank aims for the 2.5 per cent midpoint. The statement also said recent data suggest growth and inflation in Australia have been higher than expected.

Importantly, the Governor has drawn a line between energy-driven pressure and the labour market. "There is no wage price spiral going on in Australia. Rises in wages are not driving these cost pressures," she said. At the same time, she noted that "The unemployment rate is still quite low historically, and we still think the labour market is a little bit tight."

The RBA's August forecasts were prepared before the latest jump in energy prices. The September statement said energy prices are "now much higher than had been assumed in the August forecasts", and the bank's updated forecasts are due in the November Statement on Monetary Policy on 3 November.

The exchange rate adds another layer. At her media conference, Bullock described the exchange rate channel as the most important channel for monetary policy, because it affects import prices.

As at 4.00 pm on Friday 2 October, the Australian dollar was worth 69.33 US cents, and the trade-weighted index stood at 64.4, according to the RBA's homepage. The RBA did not tie those particular readings to fuel prices, but the Governor's comments show why the exchange rate is part of how the bank thinks about imported inflation.

What to watch

For readers tracking whether fuel-driven pressure keeps spreading, the next scheduled markers are:

  • 13 October, 11.30 am AEDT: minutes of the September Board meeting.
  • 28 October: the next CPI update.
  • 3 November, 2.30 pm AEDT: the next decision and the November Statement on Monetary Policy, with a media conference at 3.30 pm.

The Board said it "will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed." That is a description of its approach, not a forecast of its next decision.

The bottom line

The RBA's 29 September statement confirmed that higher fuel prices have partially passed through to other goods and services. That matters because the bank's main worry is not the oil shock itself, which it cannot control, but the chance that high inflation becomes embedded in expectations and price-setting. With headline inflation at 4.0 per cent, underlying inflation around 3.5 per cent and the cash rate now at 4.60 per cent, the extent of that pass-through is one of the key things the RBA has signalled it is watching.