Weaker growth must be accepted to defeat inflation: RBA

Grace LaganEconomics reporter

Updated Oct 13, 2026 – 3.33pm,first published at 1.13pm

The Reserve Bank of Australia says weaker growth in employment and economic demand must be accepted as the cost of bringing inflation back to target, as rising global cost pressures worsen the trade-off in the central bank’s dual mandate.

Minutes from the September monetary policy board meeting released on Tuesday also stressed the effect of home-grown cost pressures and noted that further price increases – and corresponding rate rises – could be on the horizon.

Governor Michele Bullock’s board says further interest rate rises remain on the table. Louise Kennerley

“In reaching [the decision to increase interest rates], members acknowledged that the trade-off between inflation and full employment had deteriorated because of global cost pressures,” the minutes said of the board’s unanimous call to increase the cash rate to a 15-year high of 4.6 per cent.

RBA officials have been warning since August that the risks of higher inflation were beginning to materialise.

The minutes confirmed that the board was attempting to preserve employment gains while taming inflation, but noted that “executing this strategy in an environment of more persistent adverse supply shocks would require accepting slower growth in demand and employment than would otherwise be the case”.

The minutes concluded by noting that further increases to the cash rate were on the table “if required”.

The minutes were the latest in a series of public communications from the central bank and its senior officials suggesting that its focus remained squarely on the inflation component of its dual mandate, as it fought to keep expectations of future price increases in check.

Economists said that worsening consumer and business sentiment could give the RBA pause before raising rates at the November meeting.

“In the near term the risk for rates is that they may go higher, but we certainly know the RBA will be quite cautious,” said NAB head of Australian economics Gareth Spence, after NAB’s latest business survey showed confidence had dipped in September to sit 18 points below its long-term average.

That came on top of flat consumer spending data for August, and the Westpac-Melbourne Institute consumer sentiment index showing last week that consumer confidence had fallen to levels not seen since the early 1990s recession.

Economists from ANZ and the Commonwealth Bank said that the minutes were more consistent with the hawkish tone struck in the statement released alongside last month’s rate rise announcement than with governor Michele Bullock’s subsequent press conference, which was read by some in the market as more dovish.

“We continue to expect that a rate hike in November is more likely than not, although the incoming data and global events will play a large part in shaping the [board’s] views between now and November,” said ANZ Australian economics head Adam Boyton on Tuesday.

Domestic pressures add to inflation

The minutes also mentioned the ongoing effect of capacity constraints in the Australian economy.

“Members noted that there had been additional signals from the July inflation data that domestic capacity pressures may be more extensive than assumed in the August forecast,” the minutes said.

Taken together, “members judged that these domestic and global developments pointed to an increase in the risk of persistently elevated inflation”.

This was at odds with Treasurer Jim Chalmers’ insistence that overseas forces – chief among them the Iran war – were to blame for Australia’s inflation woes.

“The war is pushing up global inflation while pressures in financial markets, high global debt and reassessments of artificial intelligence expectations all pose considerable downside risks,” Chalmers said on Tuesday after the International Monetary Fund’s latest World Economic Outlook forecast Australia to have one of the highest inflation rates in the developed world next year.

Since the September meeting, price rise pressures have only intensified.

The monetary policy board’s decision on September 29 was swiftly followed by an inflation report for August showing trimmed mean inflation – the central bank’s preferred measure of price increases that strips out volatile items – remained at 3.6 per cent, stubbornly above the target range of 2 per cent to 3 per cent.

Costs have continued to rise across the domestic economy.

The rate of price growth among “non-tradable” items – goods and services most exposed to domestic factors such as housing or education – hit 4.5 per cent annually in August, which economists said underscored the home-grown nature of Australia’s inflation problem.