Key Highlights

  • The Governor said short-term inflation expectations are elevated.
  • The RBA has said it is critical to stop expectations for high inflation from becoming embedded in price-setting decisions.
  • Headline inflation is 4.3 per cent and underlying inflation 3.6 per cent, and the November minutes are due on 17 November.

Governor Michele Bullock told senators on 28 October 2026 that short-term inflation expectations are elevated, a development the Reserve Bank has repeatedly said it wants to stop from taking hold.

Inflation is not only about what prices are doing today. It is also about what people believe prices will do tomorrow. That belief, known as inflation expectations, can shape how businesses set prices and how workers and employers approach pay discussions. For a central bank, it is one of the most important variables to watch.

In her opening statement to the Senate Economics Legislation Committee at Supplementary Budget Estimates on 28 October 2026, Reserve Bank of Australia (RBA) Governor Michele Bullock included a brief but significant observation: short-term inflation expectations are elevated.

She did not attach a number to that statement, and this article does not either. But the direction of the comment, and the RBA's earlier warnings about expectations, help explain why it matters.

What are inflation expectations?

Inflation expectations are the rate of price growth that households, businesses and financial markets anticipate over a given period. Short-term expectations generally refer to the period immediately ahead, such as the coming year.

They matter because they can become self-fulfilling. If a business expects its costs to rise sharply, it may lift its own prices pre-emptively. If households expect prices to keep climbing, they may bring forward purchases or seek larger pay rises. Each of those decisions can, in turn, add to actual inflation.

Central banks therefore aim to keep expectations "anchored": close to the inflation target, and stable even when actual inflation temporarily moves away from it. The RBA's target is for inflation of 2–3 per cent, with the 2.5 per cent midpoint as its reference point.

Why the RBA is concerned now

Governor Bullock made the RBA's position explicit at her media conference after the September rate decision. On 29 September 2026, she said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

The current inflation backdrop gives that concern added weight. The Australian Bureau of Statistics (ABS) reported on 28 October 2026 that headline CPI rose 4.3 per cent over the 12 months to September 2026, up from 4.0 per cent in August. Underlying inflation, as measured by the trimmed mean, rose 3.6 per cent, up from a revised 3.5 per cent.

Some of the most visible price rises are the kind households notice immediately. Automotive fuel rose 23.6 per cent over the year and 9.4 per cent in September alone, driven by higher world oil prices. Electricity rose 12.8 per cent, mainly because Commonwealth electricity rebates ended.

Large, highly visible price moves at the bowser and on power bills are the sort of experiences that can shape what people expect to happen next.

Duration is another factor. Governor Bullock told senators that headline inflation peaked at 7.9 per cent at the end of 2022, was within the target range for a period in 2024 and 2025, then picked up in the second half of 2025 and has been above target since.

The RBA's August Statement on Monetary Policy projected inflation returning to the midpoint only in late 2027, with risks skewed to the upside. Since then, the Governor said, "global energy prices are now much higher than had been assumed in the August forecasts", adding: "Inflation will therefore likely be higher than was our base case in August."

When inflation sits above target for an extended stretch, and forecasts for its return are pushed further out, the risk that expectations drift upward grows. That is the scenario central banks typically work hardest to avoid, because once expectations shift, bringing inflation down can become more difficult.

Rates, and what anchored expectations look like

The RBA's main tool for influencing both demand and expectations is the cash rate. The Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent at its September meeting, effective 30 September 2026. The decision was unanimous, and it was the fourth increase of 2026, bringing the cumulative rise this year to 100 basis points.

In its statement the Board said: "Inflation remains elevated and some of the upside risks flagged in August are materialising." It also said that "the Board judged that, in light of recent developments, a further tightening in financial conditions is warranted".

Part of the purpose of acting on rates is to signal that the central bank is committed to its target. Governor Bullock said on 29 September: "Higher interest rates are needed to ensure inflation returns to target." And: "The Board will increase interest rates again if that's what's needed to get inflation down."

The RBA's leadership has also framed the issue in personal terms. Assistant Governor (Economic) Sarah Hunter, in an interview on 60 Minutes broadcast on 25 October 2026, expressed a wish that inflation would fade from public consciousness altogether: "I'd actually love it if the country could forget about it."

That remark captures, in plain words, what anchored expectations look like: a situation in which inflation is low and stable enough that households and businesses do not need to factor it into everyday decisions.

Ms Hunter also said: "We don't want to live with high inflation for a long time." Elevated short-term expectations suggest the country is, for now, some distance from the state she described.

What happens next

The Board meets on 2–3 November 2026. Its decision, together with a new Statement on Monetary Policy containing updated forecasts, is due at 2.30 pm AEDT on 3 November, followed by a media conference at 3.30 pm.

The decision has not been made. The Board has said its options include "increasing the cash rate target further if needed", and that it will be "attentive to the data and the evolving assessment of the outlook and risks". Governor Bullock has declined to pre-commit, saying in September: "I'm not going to give you forward guidance."

For readers following the RBA, things worth watching include:

  • how the November Statement on Monetary Policy describes inflation expectations
  • whether the Board's statement repeats language about expectations becoming embedded
  • the minutes of the November meeting, scheduled for 17 November

The bottom line

Governor Bullock's observation that short-term inflation expectations are elevated is a short phrase with significant implications. The RBA has stated that stopping expectations of high inflation from becoming embedded in price-setting decisions is "critical", and those expectations are now elevated at a time when headline inflation is 4.3 per cent and underlying inflation is 3.6 per cent.

As the Governor told senators: "High inflation hurts everyone." How the Board weighs that warning sign will become clear on 3 November.