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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’s August forecast, as renewed Middle East conflict lifts energy costs and domestic capacity pressures persist. The cash rate target has risen by 100 basis points this year, including a 25-basis-point increase since the committee’s June hearing. The bank’s updated forecasts and the full outlook were not provided in the opening statement.
Reserve Bank of Australia Governor Michele Bullock told a Senate economics committee on 28 October that inflation is likely to be higher than the bank expected in August, as renewed conflict in the Middle East pushes up energy prices and domestic capacity pressures remain. The warning comes after the Monetary Policy Board raised its cash rate target by 25 basis points since the committee’s June hearing, bringing this year’s cumulative increase to 100 basis points.
In her opening statement to the Senate Economics Legislation Committee’s supplementary budget estimates hearing, Bullock said the Board’s monetary policy objective is to return inflation to the midpoint of its 2–3 per cent target range, while taking account of its full-employment objective. She said inflation had fallen from a peak of 7.9 per cent at the end of 2022 and spent a period within the target range in 2024 and 2025, before picking up in the second half of 2025. More recently, she said, inflation has been around 3½ to 4 per cent year over year.
Bullock identified both international and domestic sources of pressure. She said the Middle East conflict had re-escalated and global energy prices were much higher than assumed in the RBA’s August forecasts, adding to inflation directly and through business costs such as transport. She also cited elevated short-term inflation expectations, weather-related and agricultural costs, and prices for supply-constrained technologies linked to the global AI boom.
The governor said external pressures were compounding inflation, but not driving it alone. In the RBA’s assessment, domestic capacity constraints and weak productivity growth remain concerns, even as economic growth slows and the unemployment rate has risen somewhat more than expected. Bullock said subdued aggregate-demand growth would be needed for a period to ease capacity pressures and bring inflation down sustainably. She also cautioned that the effects of recent rate increases take time to flow through to activity.
Higher Inflation Risks Shape Rate Outlook
The governor’s assessment matters because it signals that the RBA’s expected path for inflation has worsened since its August projections. Bullock said inflation would likely be higher than the August base case, although she did not provide a new forecast or announce a policy decision in this opening statement. A sustained period above target can affect household purchasing power and influence how businesses set prices and wages.
The statement also describes a policy balancing act: the RBA aims to lower inflation while supporting full employment, and rate changes affect spending with a lag. Further subdued demand could help ease price pressures, but monetary tightening can also weigh on households and businesses. The opening address did not specify how the Board would respond at its next meeting, or set out a new cash-rate path.
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From August Forecasts to October
The RBA’s latest published forecasts at the time of the hearing were in its August Statement on Monetary Policy. Those projections suggested inflation would return to around the midpoint of the target range in late 2027. Bullock said the Board judged risks to that outlook to be tilted upward at the time, and that developments since then showed some domestic and international risks had materialised or were materialising.
The committee hearing followed the RBA’s previous appearance in June. Since then, the Board had raised the cash rate target by 25 basis points, part of a total 100-basis-point increase during 2026, according to Bullock. She said the increases were intended to help return inflation to target. The statement also covered other RBA responsibilities, including payments, banking services for government agencies and the supply of banknotes; the supplied opening remarks focused mainly on monetary policy and the economic outlook.
“Inflation will therefore likely be higher than was our base case in August.”
— Michele Bullock, RBA governor, in her opening statement
Updated Forecasts Still Pending
The opening statement does not give a revised inflation forecast, quantify how much higher inflation may be than the August baseline, or specify the duration of elevated inflation. It also does not state whether the Board plans another rate increase. Bullock’s remarks describe the RBA’s current assessment, while future policy decisions and economic outcomes remain uncertain.
The effects of higher energy prices on household spending and business costs are still developing. The statement says growth is slowing as expected and the impact of the Middle East conflict on economic activity has been modest so far, but does not quantify how those conditions may change. It also provides no detailed figures for the outlook for employment, productivity or household demand.
Committee Questions and RBA Projections
Bullock and her colleagues appeared before the committee to answer senators’ questions after the opening statement. Their responses may provide further detail on the RBA’s assessment of energy costs, domestic inflation and the lagged effects of rate increases. The supplied material does not include the committee’s subsequent questions or answers.
Readers will need the RBA’s next published economic projections and future Monetary Policy Board decisions to see how the bank has revised its outlook and whether that changes its policy stance. Until then, the August projections remain the latest published forecast referenced in the statement, while the governor’s warning indicates that the risks have shifted upward.
Key Questions
What did the RBA governor tell the Senate committee?
Michele Bullock said inflation was likely to be higher than the RBA’s August base case, citing renewed energy-price pressure and persistent domestic capacity constraints.
How much has the cash rate target increased this year?
Bullock said the cash rate target had increased by a cumulative 100 basis points in 2026, including a 25-basis-point rise since the committee’s June hearing. The statement does not provide the rate’s numerical level.
What inflation target does the RBA use?
The RBA aims to return inflation to the midpoint of its 2–3 per cent target range, while also taking its full-employment objective into account.
Did Bullock announce another rate increase?
No. The opening statement reviews the Board’s recent decisions and the inflation outlook, but does not announce a new rate change or state what the Board will decide at a future meeting.
When did the RBA expect inflation to return to target?
The RBA’s August forecasts projected inflation would return to around the target midpoint in late 2027. Bullock said the outlook had worsened since then; the opening statement did not provide a replacement date.
Source: bis.org
