Key Highlights

  • The August Statement on Monetary Policy projected inflation returning to the midpoint only in late 2027, with risks skewed to the upside.
  • The Governor tied the revision to global energy prices that are much higher than assumed, alongside the Middle East conflict and elevated inflation expectations.
  • The admission is about inflation, not policy, and new forecasts arrive with the decision at 2.30 pm on 3 November.

In a single sentence to senators, Governor Michele Bullock acknowledged that the Reserve Bank's own central inflation forecast from August is now likely to prove too low.

"Inflation will therefore likely be higher than was our base case in August."

Those 13 words, from Governor Michele Bullock's opening statement to the Senate Economics Legislation Committee on 28 October 2026, carry more weight than their length suggests. Central banks rarely say plainly that their own forecasts are out of date, particularly days before publishing new ones. Yet that is effectively what the Governor told senators, with the Reserve Bank of Australia's (RBA) Monetary Policy Board due to meet "next week".

This article unpacks what the August base case was, why the Governor believes it has been overtaken, and what the admission does, and does not, signal about the 3 November decision.

What the August forecasts said

The RBA publishes its economic forecasts in the Statement on Monetary Policy (SMP). The "base case" is the Bank's central projection, the path it judges most likely given its assumptions about things such as energy prices and the cash rate.

According to the Governor's Senate statement, the August SMP projected inflation returning to the midpoint of the 2–3 per cent target range only in late 2027. It also judged that the risks around that projection were skewed to the upside, meaning the Bank saw more chance of inflation coming in higher than forecast than lower.

That was already a long timeline. Headline inflation peaked at 7.9 per cent at the end of 2022. It returned to within the target range for a period in 2024 and 2025, but picked up in the second half of 2025 and has been above target since. A return to the midpoint in late 2027 implied several more years above the Bank's 2.5 per cent reference point.

Why the base case has been overtaken

The Governor tied the admission directly to energy, telling the committee that "global energy prices are now much higher than had been assumed in the August forecasts", echoing language the Board itself had used in its 29 September decision statement.

That statement had also observed: "Inflation remains elevated and some of the upside risks flagged in August are materialising." In other words, risks the Bank had identified as possible in August have since begun to show up in the data.

Other elements of the Senate statement point the same way:

  • The Middle East conflict has re-escalated.
  • Short-term inflation expectations are elevated.
  • Global cost pressures are also linked to AI-related demand and extreme weather.
  • The Bank still sees "inflation arising from domestic capacity pressures."

The Australian Bureau of Statistics' (ABS) September CPI, released on 28 October, gives a sense of how energy is feeding through. Automotive fuel rose 23.6 per cent over the year, driven by higher world oil prices, and 9.4 per cent in September alone. Headline inflation rose to 4.3 per cent in the 12 months to September, up from 4.0 per cent in August. Underlying inflation, measured by the trimmed mean, was 3.6 per cent.

Reading the signal carefully

What should observers take from the admission? A few points are worth keeping in mind.

First, it is a statement about inflation, not about policy. The Governor said inflation will likely be higher than the August base case; she did not say what the Board will do about it. At the 29 September media conference, she made the Bank's approach clear: "I'm not going to give you forward guidance."

Second, the Board's reaction function has been spelled out in general terms. In September it said it was prepared to respond, "including increasing the cash rate target further if needed", and that "the Board will be attentive to the data and the evolving assessment of the outlook and risks". At the same media conference, the Governor said: "The Board will increase interest rates again if that's what's needed to get inflation down." Those words describe a willingness to act, conditional on the Board's assessment, rather than a commitment.

Third, a higher inflation forecast is weighed against other parts of the outlook. The Governor told senators that the full effects of recent rate rises are yet to be felt, after a cumulative 100 basis points of increases this year. Household spending growth is moderating only gradually. The unemployment rate has risen "a little more than we had expected", even though the labour market appears slightly tighter than previously judged. Housing prices have fallen in most capital cities.

Fourth, the Bank's flexibility on timing matters. The Governor said the aim is to return inflation to the target range with the midpoint as reference, with some flexibility on timing to balance full employment. A higher near-term inflation path does not, on its own, determine how the Board trades off speed of return against employment.

Fresh numbers on Cup Day

The admission has practical significance because the next set of forecasts is imminent. The November SMP will be released at 2.30 pm (AEDT) on 3 November, at the same time as the Board's decision statement, followed by the Governor's media conference at 3.30 pm. That will show how far the Bank has revised its inflation projections and how it now sees the timeline for returning to target.

Until it is published, any specific revised forecast figures are unknown, and this article does not speculate on them.

The bottom line

Governor Bullock's acknowledgement that inflation "will therefore likely be higher than was our base case in August" is a candid recognition that the energy shock and other cost pressures have outpaced the Bank's earlier assumptions. It suggests the November forecasts are likely to look less comfortable than August's on inflation.

What it does not signal is the Board's decision. The Board will weigh a higher inflation outlook against lagged effects of past tightening, a softening housing market and a labour market showing some easing. For households and businesses, it is worth reading the 3 November SMP alongside the decision itself, since the forecasts will explain much of the reasoning, whatever the outcome.