RBA Governor Michele Bullock said there are growing signs that higher interest rates are helping to slow domestic inflation pressures, but warned that rising fuel costs linked to the Middle East conflict are creating a new challenge for policymakers. Speaking before the Senate Economics Committee, Bullock noted that “we’ve already seen some signs that this tightening is starting to work,” while cautioning that the full effects of recent rate increases could take “around one to two years” to flow through the economy.
At the same time, Bullock stressed that monetary policy cannot reverse inflation that is already being driven by higher oil prices. “The recent increases in interest rates will have no impact on the increase in inflation already in train following the increases in the prices of oil and related commodities,” she said. Instead, the role of higher rates is to “help to contain the domestic inflationary pressures and second-round effects from higher oil and commodity prices.”
Bullock highlighted evidence that the process may already be underway. She noted that inflation accelerated in the second half of 2025 before receiving another boost from fuel-price increases following the outbreak of the Middle East conflict earlier this year. More importantly, she warned that “higher fuel-related costs may have been passed through into the cost of other goods and services, including new dwelling costs,” adding that “there are indications that there are likely to be second-round effects on the prices of goods and services more broadly.” The remarks reinforce the RBA’s concern that while domestic demand pressures may be easing, the fight against inflation is far from over.
