Governor Michele Bullock framed the September rate rise as much about preventing high inflation from becoming the norm in price-setting as about today's inflation readings.

The Reserve Bank of Australia (RBA) lifted the cash rate target by 25 basis points to 4.60 per cent on 29 September 2026, effective the next day. It was the fourth increase of 2026 and the Monetary Policy Board's decision was unanimous.

The statement accompanying the move cited elevated inflation, capacity pressures and upside risks that had materialised. But when Governor Michele Bullock explained the decision at her media conference that afternoon, one sentence stood out for what it revealed about the Board's deeper concern: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

That idea, more than any single monthly data point, sits at the heart of the September hike. The questions below unpack it using what RBA officials have said on the record.

The concern

What does "embedded" actually mean here?

In Bullock's framing, the worry is not simply that prices are rising too fast, but that businesses and workers might come to assume they will keep doing so, and set prices and wages accordingly. Once that assumption takes hold in price-setting decisions, inflation can become self-sustaining.

Bullock was explicit that this is not what is happening in wages right now, telling reporters "there is no wage price spiral going on in Australia." Her concern was forward-looking: to act before expectations shift.

The Board's statement made the same point in more formal language, saying it judged a further tightening was warranted to return inflation to target in a reasonable period. It added that the Board "will continue to do what it considers necessary" to achieve that.

The evidence

How long has inflation been too high?

Long enough for the risk to be real. In her opening statement to the House of Representatives Standing Committee on Economics in Canberra on 18 September, Bullock noted that inflation peaked at 7.9 per cent at the end of 2022 and has been above the 2–3 per cent target since the second half of 2025.

She told the committee: "Inflation is too high. We are focused on getting it back down". She also warned: "Inflation is likely to remain elevated for some time."

The longer inflation sits above target, the greater the chance that people stop treating it as temporary. Deputy Governor Andrew Hauser described the public mood bluntly on ABC's 7.30 on 8 September: "People are furious about inflation." He added that "the price level in the economy has risen by 10, 15, 20 per cent higher than it should have done."

Which inflation numbers matter?

Two kinds of measure are in play, and they tell slightly different stories:

  • Headline inflation: the monthly Consumer Price Index (CPI) showed an annual increase of 4.0 per cent in the August month of 2026. The Australian Bureau of Statistics began publishing the CPI monthly from November 2025.
  • Underlying inflation: Bullock said on 29 September that "the underlying inflation rate's been about 3.5 per cent for the past six months". The trimmed mean measure was 3.6 per cent in the June quarter of 2026, according to the August minutes.

Both are above the 2–3 per cent target band and its 2.5 per cent midpoint. The gap between them is partly about energy. Bullock observed that "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher", and the Board's statement noted higher fuel prices were partly passing through to other goods and services. That pass-through into a wider range of prices is precisely the kind of spread that can feed expectations.

The stakes

Why not just wait for the earlier hikes to work?

Monetary policy works with a lag, Bullock told the parliamentary committee, and the full effects of recent rises were not yet visible. The Board had held at 4.35 per cent in August, judging policy "sufficiently restrictive", while remaining "alert to the upside risks to the inflation outlook and being ready to act should they materialise."

By September, the Board said some of those risks had materialised, including further disruption to global oil supply from the Middle East conflict and strong AI-related demand pushing up technology-goods prices. Bullock also pointed to the domestic side: "Inflation is too high and has been driven by domestic capacity pressures."

In that setting, waiting carried its own risk. If inflation lingered above target while new price shocks arrived, the chance of expectations drifting upward would grow.

What happens if expectations do become unanchored?

Bullock also sketched the stakes. Speaking specifically about a scenario in which inflation expectations became unanchored, she said: "that is a circumstance in which I think you might need to have quite a dramatic slowdown in the economy".

That is not the RBA's expectation. On recession, Bullock said: "That is not our central base case at this moment." Hauser had earlier described the Board as taking a gradual approach to protect jobs, while noting it could raise rates further if needed.

Read together, these remarks suggest the September increase was framed as a smaller step taken now to lower the chance of needing a far more painful one later. The August minutes forecast underlying inflation above 3 per cent until mid-2027 and around 2½ per cent in late 2027, with unemployment rising gradually to 4.8 per cent by the end of 2028.

The bottom line

The September hike was about more than a 4.0 per cent headline reading or underlying inflation of about 3.5 per cent. Bullock framed it as a fight to stop high inflation becoming built into how prices and wages are set, a risk that grows the longer inflation stays above target.

The cash rate now stands at 4.60 per cent. The September CPI is due on 28 October and the next decision at 2.30 pm on 3 November 2026. Bullock has made clear she will not pre-empt it: "I'm not going to give you forward guidance."