The Reserve Bank of Australia has warned that several upside risks to inflation are beginning to materialise, with Governor Michele Bullock pointing to renewed energy-price pressure, the global AI investment boom and persistent domestic capacity constraints ahead of the central bank’s September rate decision.
Bullock told the House of Representatives Standing Committee on Economics on 18 September that inflation remains too high despite three increases in the cash rate this year. The Monetary Policy Board has lifted rates by a combined 75 basis points during 2026, taking the cash rate target to 4.35%. The RBA left that rate unchanged at its August meeting while it assessed how earlier tightening was affecting activity and prices.
The latest inflation data underline the problem. Australia’s Consumer Price Index rose 3.5% in the 12 months to July, down from 3.8% in June but still above the RBA’s 2%–3% target range. Trimmed mean inflation, which the Bank watches closely as a measure of underlying price pressure, remained at 3.6%. Housing prices within the CPI basket increased 5.0% over the year, while food and non-alcoholic beverages rose 3.2%.
Bullock said developments since the August policy meeting suggest some of the inflation risks identified by the Bank are now becoming more visible. Oil and related prices have risen as the Middle East conflict continues, while businesses participating in the RBA’s liaison programme report passing higher input costs on to customers. The concern for policymakers is that those increases could become embedded in broader price and wage-setting behaviour, making inflation more persistent.
The global AI investment cycle is adding another source of pressure. Bullock said rapid expansion in economies central to AI supply chains is supporting growth but also pushing up prices for technologies where supply remains constrained. The RBA had already identified strong AI-related activity as an important driver of resilience among Australia’s major trading partners in its August economic assessment.
Domestic conditions are also keeping policymakers cautious. Although Australian growth is slowing and labour-market conditions have eased gradually, the RBA says some capacity pressures remain. Its August assessment judged financial conditions to be somewhat restrictive, but the Bank continues to emphasise that economic demand needs to remain subdued for long enough to bring inflation sustainably back towards target.
A 4.35% cash rate combined with persistent inflation keeps corporate borrowing, investment and working-capital assumptions under pressure. Businesses facing higher energy or technology costs must also consider how much of those increases can be absorbed rather than passed through to customers, particularly if further monetary tightening weakens demand.
Treasury teams may need to test refinancing plans against the possibility that Australian rates remain restrictive for longer than previously expected. Higher policy rates can also affect currency exposure, corporate bond pricing and funding decisions for companies operating across Australia and other markets where central banks are tightening in response to similar inflation pressures.
The RBA’s next Monetary Policy Board meeting is scheduled for 28–29 September, with the decision due on 29 September. The Board will be assessing whether the 75 basis points of tightening already delivered this year is sufficient to return inflation sustainably to target, or whether persistent global and domestic price pressures require a stronger response.
