Highlights

  • The RBA has raised the cash rate target by 100 basis points this year.
  • Bullock says Inflation will likely exceed the August base case.
  • The Board will assess whether tightening has been sufficient at its next meeting.

Australia’s inflation fight has become more difficult despite a slowing economy, with Reserve Bank of Australia Governor Michele Bullock warning that price pressures are likely to exceed the central bank’s August base case. Her 28 October 2026 statement to the Senate Economics Legislation Committee put persistent domestic constraints and renewed global cost increases at the centre of the policy outlook.

Rate Rises Face a More Persistent Inflation Problem

The Monetary Policy Board has increased the cash rate target by 25 basis points since the Committee’s previous hearing in June, taking the cumulative rise this year to 100 basis points. Bullock said the increases were intended to return inflation to target.

Inflation has recently been around 3½ to 4 per cent in year-ended terms. It had fallen from a peak of 7.9 per cent at the end of 2022 into the 2–3 per cent target range for a period in 2024 and 2025, before picking up in the second half of 2025.

The RBA’s August Statement on Monetary Policy projected a return to around the target midpoint only in late 2027. Risks were already skewed upwards at that time. Bullock said some international and domestic risks had since materialised or were materialising, even as growth slowed as expected.

Domestic Constraints Compound Global Costs

The renewed escalation of the Middle East conflict has pushed energy prices well above the assumptions underpinning the August forecasts. Higher oil and related prices are expected to add to inflation directly and through businesses seeking to pass on transport and associated costs.

Domestic pressures remain evident when volatile price movements such as fuel are excluded. The RBA judges the labour market to be slightly tighter than previously assessed, while weak productivity limits the economy’s ability to grow strongly without increasing inflation.

Against that background, Bullock said a further period of subdued Aggregate Demand growth was needed to ease capacity pressures and bring inflation down sustainably.

The Board Weighs Policy Lags Against Inflation Risks

The full effects of recent rate increases have yet to reach domestic activity because monetary policy works with a lag. Household spending growth is moderating gradually, while Business Investment growth has strengthened, mostly through data centres and renewable energy projects.

At the meeting scheduled for the week after her statement, the Board will assess incoming data and whether tightening to date can return inflation to target within a reasonable time. Bullock did not announce a decision for that meeting.

She acknowledged the pressure on Mortgage borrowers but stressed that persistent inflation erodes pay packets and savings, particularly for people on lower incomes with little savings. The policy challenge remains returning inflation to target while meeting the RBA’s Full Employment objective.