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The Reserve Bank's August forecasts were built on less than one full rate increase by the end of 2026, but the Board delivered a full 25 basis points in September as energy prices climbed well beyond what those forecasts had assumed.

Every Statement on Monetary Policy rests on a set of assumptions. Forecasts for inflation, unemployment and growth are not produced in a vacuum; they depend on an assumed path for the cash rate and on judgements about global conditions such as energy prices.

In August 2026, the Reserve Bank of Australia (RBA) set out those assumptions plainly. Less than two months later, the Monetary Policy Board had moved beyond them. Understanding that gap helps explain both the September decision and why the November forecasts will be closely read.

What the August forecasts assumed

The August Statement on Monetary Policy described its interest rate assumption in these terms: "The forecasts assume less than one full cash rate increase by the end of 2026, before a small reduction in the cash rate further out".

On 29 September, the Board raised the cash rate target by a full 25 basis points to 4.60 per cent, effective the following day. That single move, by itself, went further than the August assumption allowed for over the rest of the year.

On that assumed path, the August outlook made several key projections:

  • "Trimmed mean inflation is expected to remain above 3 per cent until mid-2027, before easing to 2.5 per cent by early 2028".
  • "The unemployment rate is forecast to increase to 4.8 per cent by the end of 2028".
  • GDP growth of 1.4 per cent over the year to December 2026.

It is important to be precise here. Those are the August forecasts, made on August assumptions. They have not been formally updated yet, and the RBA has not said how they will change.

What shifted between August and September

The Board's statement on 29 September was explicit that the global backdrop had moved. "The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts," it said.

It added that "Global oil supply disruptions are maintaining upward pressure on global and domestic energy prices and inflation," and that "Higher fuel prices have partially been passed through to prices of other goods and services."

The domestic picture had also surprised. The statement noted that recent data suggest growth and inflation in Australia have been higher than expected. It pointed to strength in some areas, saying "Growth in business investment and debt is strong," while also observing that "There are signs that growth in consumer spending is easing gradually as expected."

Another pressure came from technology. "AI-related demand is driving rapid growth in global prices for technology-related goods," the statement said.

The October Financial Stability Review, released two days after the decision, added that energy prices rose sharply again in September in response to Middle East developments.

Inflation readings reinforce the point. The August monthly CPI indicator showed headline inflation of 4.0 per cent. That is a headline figure, not an underlying one: Governor Michele Bullock said underlying inflation has been about 3.5 per cent for the past six months. Both sit above the 2–3 per cent target range.

Why the assumption gap matters

A forecast is conditional: it describes what is expected if its assumptions hold. When the actual cash rate moves away from the path assumed in a forecast, the forecast itself becomes a less reliable guide. That applies to every forecast the RBA publishes, not only this one. The August projections for inflation, unemployment and growth were produced on the expectation of a gentler path for interest rates and lower energy prices than now prevail.

That does not mean the forecasts were wrong at the time they were made. It means circumstances changed, and the Board responded. Ms Bullock described the move at her media conference in straightforward terms, noting the cash rate had been raised three times earlier in the year and adding: "This is one more."

She was also clear about the Board's priority. "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions," she said. The Board's statement noted that "Short-term measures of inflation expectations remain elevated."

The Governor did not frame the decision as a sign of looming downturn. Asked about recession, she said: "That is not our central base case at this moment."

What to watch: the November reset

The next set of forecasts will arrive with the November Statement on Monetary Policy, released at 2.30 pm AEDT on 3 November, at the same time as the Board's next decision. A media conference follows at 3.30 pm.

Readers comparing the November forecasts with August's may wish to look at:

  • the assumed path for the cash rate, and how it compares with the August assumption;
  • the assumptions for energy prices, given the Board's comment that they are now much higher;
  • whether the timing for trimmed mean inflation to fall below 3 per cent changes from mid-2027; and
  • the projected path for unemployment, which Ms Bullock said on 29 September had risen to 4.6 per cent.

Before then, the minutes of the September meeting are due on 13 October and the next CPI update on 28 October.

The Board has not committed to any particular outcome. Its statement 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."

The bottom line

The August forecasts assumed less than one full cash rate increase by the end of 2026. In September, the Board delivered a full 25 basis point rise, citing energy prices that are much higher than August assumed and growth and inflation that have run higher than expected. The August numbers remain the RBA's most recent published forecasts, but they rest on assumptions that events have already overtaken. The November Statement on Monetary Policy will show how far the outlook has moved.