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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 central bank forecast in August. She cited higher global energy costs linked to renewed Middle East conflict, other international price pressures and domestic capacity constraints; the cash rate target has risen 100 basis points this year.
Reserve Bank of Australia Governor Michele Bullock told a Senate committee on 28 October that inflation is likely to run higher than the RBA’s August forecast, as renewed Middle East conflict lifts global energy prices and domestic capacity pressures persist. She said the Monetary Policy Board had raised the cash rate target by 25 basis points since the committee’s June hearing, bringing the total increase this year to 100 basis points.
In her opening statement to the Senate Economics Legislation Committee’s supplementary budget estimates hearing, Bullock said annual inflation had recently been around 3.5 to 4 per cent, above the RBA’s 2–3 per cent target. The bank’s latest published forecasts, issued in its August Statement on Monetary Policy, had indicated inflation would return to around the target’s midpoint in late 2027. Bullock said subsequent developments pointed to inflation being higher than that central forecast.
She attributed the worsening outlook to a mix of international and domestic factors. The conflict in the Middle East had escalated again, pushing oil and related prices well above the assumptions in the August forecasts. Bullock said higher fuel and transport costs could affect prices directly and indirectly as businesses pass on some of their increased expenses. She also cited elevated short-term inflation expectations, weather-related and agricultural costs, and rising prices for some technologies affected by demand from the global artificial intelligence boom.
Bullock said international pressures were compounding, rather than replacing, inflation arising from Australian economic conditions. In her assessment, domestic capacity pressures remained, even as growth slowed. She pointed to underlying inflationary pressures and a labour market that appeared somewhat tighter than previously judged. The RBA was also watching weak productivity growth, which she said limited how quickly the economy could expand without adding to inflation.
Higher Inflation Risks Shape Rate Outlook
The statement matters because it indicates that the RBA’s inflation outlook has worsened since its August assessment, while the effects of recent interest-rate increases have yet to flow fully through the economy. Bullock said monetary policy works with a lag, so households and businesses may continue to feel the impact of earlier rate rises even as the Board weighs the latest price pressures.
For borrowers, businesses and workers, the competing pressures are consequential: higher prices erode purchasing power, while tighter monetary policy can restrain spending and investment. Bullock said subdued growth in aggregate demand would be needed for a time to ease capacity pressures and bring inflation down sustainably. The statement did not announce a new rate decision; it set out the risks and reasoning the central bank is monitoring.
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From Target-Range Return to Renewed Pressure
Inflation in Australia fell from a peak of 7.9 per cent at the end of 2022 after substantial monetary tightening over 2022 and 2023. It returned to the 2–3 per cent target range for a period during 2024 and 2025, before rising again in the second half of 2025. Bullock said inflation had remained above target since then.
The RBA’s monetary policy objective is to return inflation to the midpoint of its target range while also pursuing full employment. Bullock said the Board allows flexibility over the time taken to meet the inflation objective, but warned that inflation remaining above target for too long could become embedded in expectations and influence wage- and price-setting. The June committee hearing provides the comparison point for the latest 25-basis-point rate increase.
The Governor also addressed the RBA’s wider responsibilities, including the payments system, banking services for government agencies and banknote distribution. Her opening statement said she would provide updates on payments and cash, as well as discuss monetary policy and the economic outlook.
“Inflation will therefore likely be higher than was our base case in August.”
— Michele Bullock, RBA Governor
Extent and Duration of Price Pressures
The statement does not quantify how much higher inflation may be than the August forecast, or specify how long the latest energy-price shock will persist. It also does not provide revised forecasts: Bullock referred to the August projections as the RBA’s most recently published outlook. The source material gives no new cash-rate decision beyond the 25-basis-point increase since June.
It remains unclear how much of the higher global costs businesses will pass on to consumers, how the conflict will affect energy and transport prices over time, and how quickly domestic inflation pressures will ease. Bullock said the labour market appeared tighter than previously assessed despite a recent rise in unemployment, but the statement does not give a revised unemployment forecast or a new estimate of spare capacity.
RBA to Monitor Inflation and Demand
Bullock and her colleagues appeared before the Senate Economics Legislation Committee to answer members’ questions following the opening statement. The RBA’s next policy assessments will need to weigh incoming inflation and activity data against the delayed effects of rate increases already made. The source statement does not identify a date for a new forecast or specify what the Board will decide at its next meeting.
For now, the RBA’s stated focus is whether domestic capacity pressures and global cost increases keep inflation above target, and whether demand slows enough to relieve those pressures. Further details on payments-system and cash-distribution matters were also due to be addressed during the hearing.
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, citing renewed global energy-cost pressures and ongoing domestic capacity constraints.
How high has inflation recently been?
Bullock said inflation had recently been around 3.5 to 4 per cent in year-ended terms, above the RBA’s 2–3 per cent target range.
How much has the cash rate target risen this year?
The RBA Governor said the Board’s 25-basis-point increase since the June hearing brought the cumulative rise this year to 100 basis points.
Did the opening statement announce another rate increase?
No. It reported the increase made since June and discussed the inflation outlook, but did not announce a new rate decision.
When does the RBA expect inflation to return to target?
The most recent published forecast cited by Bullock, from August, projected inflation returning to around the target midpoint in late 2027. She said developments since then suggested inflation would be higher than the forecast’s base case; the statement provided no revised date.
Source: bis.org
