Explaining September's rate rise, Governor Michele Bullock argued that the costs of high inflation fall on everyone, and hardest on those least able to absorb them.

"High inflation hurts all Australians, especially the most vulnerable." That line, from Governor Michele Bullock's media conference on 29 September 2026, sat at the heart of her case for lifting the cash rate target by 25 basis points to 4.60 per cent.

It came immediately after an acknowledgement of the other side of the ledger. "Now, I know this decision is difficult for households with a mortgage and businesses with loans," Bullock said. The tension between those two statements, the pain of higher rates versus the pain of persistent inflation, runs through the RBA's recent communication.

Inflation's long stay above target

Bullock's argument rests on how long inflation has been away from the target. The RBA aims for inflation of 2 to 3 per cent, with a midpoint of 2.5 per cent. According to Bullock, inflation has been outside that range for about six years, briefly returning to the target in 2025.

The latest figures show why the Board remains concerned:

  • Headline CPI (monthly, all groups) was 4.0 per cent over the year to August 2026.
  • Headline CPI for the June quarter 2026 was 3.9 per cent over the year.
  • Trimmed mean, the RBA's underlying measure, was 3.6 per cent over the year to the June quarter.

These are different measures. Headline CPI captures the full basket of prices that households pay, while the trimmed mean excludes the largest price rises and falls each period to show the underlying trend. Bullock separately said underlying inflation had been running at about 3.5 per cent over the past six months. She noted that quarterly inflation of about 0.6 per cent is consistent with about 2.5 per cent a year, contrasting that with quarterly readings of 0.8 and 1 per cent.

"Inflation is too high and has been driven by domestic capacity pressures," she said, adding: "Higher interest rates are needed to ensure inflation returns to target."

Why higher prices weigh more on some households

Bullock did not set out, in the quotes recorded here, a detailed breakdown of which groups are hit hardest. But the basic mechanics are widely understood. When prices rise faster than a household's income, that household can buy less with the same pay. People with little in savings have less room to absorb the difference, while those with larger savings or rising incomes are better placed to cope.

The RBA's own data on mortgage holders illustrate how buffers vary across income levels. According to the minutes of the September meeting, median savings buffers were:

  • just under one year of scheduled repayments for borrowers in the lowest income quintile;
  • almost two years of scheduled repayments for those in the highest income quintile.

Both medians amount to many months of repayments. But the gap shows that lower-income borrowers have less time to absorb any further pressure on household budgets.

Bullock also pointed to price increases she expects to persist. Discussing the Middle East conflict and higher oil prices, she said: "it's made us all poorer in this country. That is a fact." She went on: "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher."

Borrowers feel it from two directions

For households with a mortgage, high inflation and higher rates arrive together. The minutes record that scheduled mortgage payments rose to around 10 per cent of household disposable income, around their 2024 peak. Bullock cited a similar figure at her media conference, while noting she might not have it exactly right.

To put the latest move in context, here is an illustration only, using hypothetical interest rates that are not RBA or lender figures. On a $550,000, 30-year principal-and-interest loan with monthly repayments, a rate of 6.00 per cent gives a repayment of $3,297.53. At 6.25 per cent, the repayment is $3,386.44, a difference of about $88.92 a month.

The RBA's broader data suggest most borrowers are coping so far:

  • Less than 2 per cent of owner-occupier borrowers faced a cash-flow shortfall, according to the minutes.
  • The Financial Stability Review says the share of variable-rate owner-occupiers in shortfall "increased a little over the first half of 2026, but remains relatively low at around 2 per cent".
  • Most borrowers in shortfall have savings to cover it for at least six months, the review says.

Bullock also reminded listeners that many borrowers hold savings alongside their loans: "remember that a lot of people have a mortgage, and then they have an offset account, which sits in the background."

The trade-off the Board is weighing

The RBA's mandate covers both price stability and full employment, and the Board has to weigh one against the other. On the jobs side, unemployment has risen to 4.6 per cent, up from about 3.5 per cent a couple of years earlier, according to Bullock, though she noted that "the unemployment rate is still quite low historically". She also said more than one million jobs had been created over that period.

Asked about recession risk, Bullock said: "That is not our central base case at this moment."

The September minutes show the Board considered a case for holding rates, including downside risks to activity and employment and the lagged effects of earlier tightening. It ultimately decided, unanimously, to raise the cash rate, concluding that a timely response best balanced its objectives. The decision statement said: "The Board remains focused on ensuring that high inflation does not become embedded."

Bullock was also candid about the limits of what rates can achieve. "The bottom line is that productivity is doing nothing," she said, and "monetary policy can't do anything about productivity."

The bottom line

Bullock's message is that higher rates are painful, particularly for households and businesses with loans, but that letting high inflation persist would be worse, because it "hurts all Australians, especially the most vulnerable." The RBA's data show most mortgage holders still have buffers, though lower-income borrowers have thinner ones. With the next decision due on 3 November, and Bullock declining to give forward guidance, households wanting to understand their own position may find it useful to speak with a licensed financial professional.