RBA officials delivered a broadly hawkish message ahead of the September 29 policy meeting, warning that inflation risks identified last month were beginning to crystallize. In her opening statement to the House of Representatives Standing Committee on Economics in Canberra on Friday, Governor Michele Bullock said “inflation is too high” and that “some of these upside risks to inflation appear to be materialising.” After raising the cash rate by 75bp to 4.35% this year, the Board’s key question is now whether that tightening will be sufficient to return inflation to target within a reasonable timeframe.
The concern extends beyond the direct effect of higher oil prices. Bullock said the prolonged Middle East conflict, the global AI boom and extreme weather were lifting energy, agricultural and technology costs. RBA liaison indicated that firms were increasingly passing higher input costs to customers, creating a risk that the shock becomes embedded in broader price and wage decisions. She warned that persistent inflation could require a “stronger policy response.” Australia also entered the global shock with domestic capacity pressures already present. As Bullock put it, “we started with excess demand,” leaving the economy more exposed to a second inflationary impulse.
There are signs that higher rates are restraining activity. Household spending growth is moderating, housing prices and new lending have declined, and the full effect of recent tightening has yet to reach the economy. But those counterweights have not yet produced substantial spare capacity. Labour-market conditions remain close to and slightly tighter than full employment, while Bullock described forward-looking employment indicators as “stable-ish.” Business investment has also accelerated, led by data centres and renewable energy, while weak productivity limits how quickly demand can grow without generating further inflation.
The officials’ language suggested that the RBA is prepared to tighten again if incoming evidence does not show sufficient disinflation. Bullock emphasized that “interest rate rises do work,” while RBA Deputy Governor Andrew Hauser said the Bank would “persevere.” Hauser also described the exchange rate as the “biggest single channel” through which higher rates affect the economy, since a stronger Australian Dollar lowers import costs. Bullock stopped short of pre-committing to a September hike, but the collective message was difficult to interpret as neutral: the RBA sees inflation risks intensifying before domestic capacity pressure has been fully removed.
Key takeaways
- RBA officials delivered a broadly hawkish message ahead of the September 29 policy meeting, questioning whether this year’s 75bp of tightening will be sufficient.
- RBA Governor Michele Bullock said inflation was “too high” and that previously identified upside risks were beginning to materialize.
- Australia entered the global inflation shock with excess demand and lingering capacity pressure, making it more vulnerable to renewed increases in energy and input costs.
- The Middle East conflict, AI investment boom and extreme weather are adding pressure to energy, agricultural and technology-related prices.
- RBA liaison indicates that businesses are already passing higher input costs to consumers. Bullock warned that persistent pass-through could require a stronger policy response.
- Household spending and housing have weakened, but labour-market conditions remain slightly tighter than full employment. Forward-looking employment indicators do not point to an imminent deterioration.
- Strong data-centre and renewable-energy investment is supporting demand, while weak productivity limits how quickly the economy can grow without generating inflation.
- RBA Deputy Governor Andrew Hauser said the Bank would “persevere” and identified the exchange rate as the largest single channel of monetary-policy transmission.
- Bullock did not pre-commit to another hike, but the discussion has shifted toward whether additional tightening is needed to prevent the global shock from becoming embedded domestically.
