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Reserve Bank of Australia Governor Michele Bullock told a Senate committee on 28 October that inflation is likely to be higher than the RBA forecast in August, as renewed Middle East conflict lifts energy costs and domestic capacity pressures persist. The RBA has raised its cash rate target by 100 basis points this year, including a 25-basis-point increase since the committee’s June hearing.
Reserve Bank of Australia Governor Michele Bullock told senators on 28 October that inflation is likely to run higher than the RBA expected in August, citing renewed global energy-cost pressures and persistent domestic capacity constraints. She said the Monetary Policy Board had lifted the cash rate target by 25 basis points since its June appearance, bringing the increase this year to 100 basis points, as it seeks to return inflation to target.
In her opening statement to the Senate Economics Legislation Committee’s supplementary budget estimates hearing, Bullock said inflation had risen from a peak of 7.9 per cent at the end of 2022, fallen into the RBA’s 2–3 per cent target range for a period in 2024 and 2025, and then picked up in the second half of 2025. It has since remained above target, at around 3½ to 4 per cent in year-ended terms, she said.
The governor said the August forecast had inflation returning to around the midpoint of the target range only by late 2027. Since that outlook was published, the Middle East conflict has escalated again and global energy prices have risen well above the assumptions used in the forecast. Bullock said higher oil and related prices would add to inflation directly and could also raise transport and other business costs that may be passed on to customers.
She also pointed to elevated short-term inflation expectations and higher prices for some agricultural and technology-related goods. The AI boom is contributing to stronger demand for supply-constrained technologies, while extreme weather is adding pressure to some prices, she said. Bullock stressed that global costs are not the sole cause: underlying inflation pressures also reflect domestic demand and capacity constraints.
Rate Rises Aim to Contain Price Pressures
The RBA’s assessment matters to households and businesses because persistent inflation erodes purchasing power and can affect decisions on borrowing, spending and investment. The governor’s warning that the outlook has worsened since August signals that the task of bringing inflation back to target may take longer or require continued restraint in demand.
Bullock said monetary policy works with a lag, so the full effect of recent rate increases has not yet reached domestic activity. She also said subdued growth in aggregate demand is needed to ease capacity pressures. That creates a difficult balance for the bank: inflation must return to the 2–3 per cent range while monetary policy also takes account of its full-employment objective.
The statement does not announce a new rate decision. It sets out the governor’s account of the economic conditions facing the board and the reasons inflation may prove more persistent than previously forecast. Households and firms will be watching upcoming inflation and activity data for evidence of how those pressures are evolving.
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From Falling Inflation to Renewed Pressure
The RBA’s inflation target is 2–3 per cent, with the board aiming for inflation to return to the midpoint while considering its full-employment objective. Bullock said inflation had been within the target range for a period during 2024 and 2025 after a significant tightening of monetary policy in 2022 and 2023, but had moved above target again from the second half of 2025.
At the committee’s previous hearing in June, the RBA had not yet made the latest increase described in this statement. The board has since raised the cash rate target by 25 basis points, taking the cumulative increase in 2026 to 100 basis points. The RBA’s August Statement on Monetary Policy projected a return to around the target midpoint in late 2027; Bullock told senators that some of the upside risks identified then had since materialised or were emerging.
She said Australian economic growth was slowing as expected, while household spending growth was moderating gradually and business investment had picked up strongly, driven mostly by spending on data centres. The governor also identified weak productivity growth as a longer-term constraint, saying it limits how quickly the economy can grow without adding to inflation.
“Inflation will therefore likely be higher than was our base case in August.”
— Michele Bullock, RBA governor
Inflation Path Depends on New Data
The statement does not provide a revised numerical inflation forecast or specify how the board will respond at its next meeting. It is also not clear how long the renewed rise in global energy prices will last, how much of higher business costs will be passed on to consumers, or how those effects will interact with domestic demand.
Bullock said the impact of the Middle East conflict on economic activity had been relatively modest so far, but the conflict had pushed energy prices above the assumptions behind the August forecasts. The eventual effect on inflation and growth remains uncertain. The statement also notes a recent rise in unemployment that was somewhat larger than expected, while describing the labour market as tighter than the RBA had previously judged.
Committee Questions and RBA Forecasts
Bullock and her RBA colleagues attended the supplementary estimates hearing to answer committee members’ questions. The opening statement was the governor’s account of the outlook; the source material does not set out the committee’s subsequent questions or any further decisions announced at the hearing.
The next indications of the bank’s assessment will come from incoming data and future RBA communications. The August Statement on Monetary Policy remains the latest published forecast cited in the opening statement, and Bullock said inflation now appears likely to be higher than that baseline. The timing and scale of any further policy action were not specified.
Key Questions
What did the RBA governor tell the Senate committee?
Michele Bullock said inflation is likely to be higher than the RBA’s August forecast because global energy prices have risen and domestic capacity pressures remain.
How much has the cash rate target risen this year?
Bullock said the board had increased the cash rate target by 100 basis points in 2026, including a 25-basis-point increase since the committee’s June hearing.
What is the RBA’s inflation target?
The RBA targets inflation within a range of 2–3 per cent. Bullock said the board aims to return inflation to the midpoint of that range while also considering full employment.
Did the governor announce another rate rise?
No. The opening statement described the board’s recent decision and the changing inflation outlook, but did not announce a new rate decision or specify the timing of any future move.
Source: bis.org
