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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, citing renewed Middle East conflict, higher global energy prices and domestic capacity pressures. The Monetary Policy Board has raised the cash rate by 25 basis points since its previous hearing in June, bringing this year’s cumulative increase to 100 basis points.
Reserve Bank of Australia Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that inflation is likely to run higher than the RBA’s August forecast, as elevated domestic price pressures combine with renewed global cost increases. The statement also records a 25-basis-point cash rate rise since the committee’s previous hearing in June, taking the total increase this year to 100 basis points.
Bullock said the Monetary Policy Board raised the cash rate target to return inflation to the RBA’s 2–3 per cent target range. Inflation, which reached 7.9 per cent at the end of 2022, fell into the target range for a period in 2024 and 2025 after monetary policy tightened in 2022 and 2023. It has since picked up and, Bullock said, has recently been around 3½ to 4 per cent year-on-year.
The Governor identified renewed conflict in the Middle East and higher global energy prices as risks to the outlook, saying increases in oil and related prices would add to inflation directly and through business costs such as transport. She also cited higher prices associated with demand for AI-related technologies and extreme weather effects on some agricultural prices. The RBA’s August forecasts had projected inflation returning to around the target’s midpoint in late 2027; Bullock said subsequent developments pointed to inflation being higher than that baseline.
She said inflation was also being driven by domestic capacity pressures, not only overseas costs. In the RBA’s assessment, underlying inflation remains elevated even when volatile movements such as fuel are excluded. Bullock said the labour market appeared somewhat tighter than previously judged, despite a recent increase in unemployment, and that weak productivity growth limits how quickly the economy can expand without adding to inflation.
Higher Inflation Could Keep Rates Elevated
The warning matters because persistent inflation can extend the period in which households and businesses face high borrowing costs. Bullock said monetary policy operates with a lag, so the full effect of recent rate rises has not yet flowed through to economic activity. Further restraint on aggregate demand, she said, is needed to ease capacity pressures and bring inflation down sustainably.
The pressures described in the statement come from both global events and conditions inside Australia. Higher energy and transport costs can affect prices across the economy, while domestic demand and limited productivity growth may sustain underlying inflation. That combination complicates the task of returning inflation to target while also supporting the RBA’s full-employment objective. The statement sets out the bank’s assessment; it does not announce a new rate decision beyond the increase already recorded.
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From the June Hearing to October
The committee’s hearing is part of its scrutiny of the RBA and its responsibilities. Bullock said the bank’s monetary policy objective is to return inflation to the midpoint of the target range while taking account of full employment. The RBA also has responsibilities for financial stability, payments, government banking services and supplying banknotes.
In its August Statement on Monetary Policy, the RBA forecast that inflation would not return to around the midpoint of the target range until late 2027. At that time, the Board assessed risks to the forecast as tilted to the upside. Bullock’s October statement says some domestic and international risks have since materialised or are materialising. It also notes that economic growth is slowing broadly as expected, while household spending has moderated gradually and business investment has picked up strongly, driven mostly by data-centre spending.
“Inflation will therefore likely be higher than was our base case in August.”
— Michele Bullock, RBA Governor, in her opening statement
Forecasts Face Further Cost Risks
The statement does not give a revised numerical inflation forecast or specify how much higher inflation may be than the August baseline. It also does not identify the timing or size of any future cash rate changes. Bullock described the effects of the Middle East conflict on economic activity as relatively modest so far, but said global energy prices were much higher than assumed in the August forecasts.
How long elevated energy and other input costs will persist, how much businesses pass those costs on, and how domestic demand will respond to earlier rate rises remain uncertain. The statement reports the RBA’s current assessment; future inflation data and economic developments could change that view.
Committee Questions and Incoming Data
Bullock and her colleagues told the committee they were appearing to answer questions. The hearing provides senators an opportunity to examine the RBA’s recent decisions, its inflation assessment and its responsibilities beyond monetary policy. The opening statement does not set out a new decision date or promise a particular policy response.
The next indications will come from incoming inflation, labour-market and activity data, as well as developments in global energy costs. The Board’s policy decisions will depend on how those indicators shape its assessment of inflation, employment and economic demand.
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 global cost pressures and domestic capacity constraints.
How much has the cash rate increased this year?
Bullock said the Board’s increase since the committee’s June hearing was 25 basis points, bringing the cumulative rise this year to 100 basis points. The opening statement does not state the cash rate’s resulting level.
What is the RBA’s inflation target?
The RBA aims to return inflation to the midpoint of its 2–3 per cent target range, while also taking account of its full-employment objective.
Why does the RBA expect inflation to be higher?
Bullock pointed to higher energy prices linked to renewed Middle East conflict, other global cost pressures and domestic capacity constraints. She also cited weak productivity growth as a limit on growth without added inflation pressure.
Did the statement announce another rate rise?
No. It reports a 25-basis-point increase since the June hearing and discusses the outlook, but does not announce a new rate decision or specify the timing of a future move.
Source: bis.org
