Australia's central bank lifted its benchmark interest rate by 25 basis points to 4.60% on the 29th, marking the fourth hike this year. With inflation still above target, economic growth momentum slowing, business activity expansion weakening and the labor market easing at the margin, the Reserve Bank of Australia's renewed tightening shows that inflation remains the primary consideration in monetary policy setting. However, as interest rates rise further, the impact of monetary tightening on household consumption, business investment and the job market will gradually emerge, and the growth pressure Australia's economy faces during the disinflation process warrants attention.

Inflation pressure remains significant, oil price rise adds uncertainty

Since the start of the year, Australia's inflation trajectory has diverged. The monthly headline CPI annual growth rate rose to a阶段性 high of 4.6% in March before gradually declining to 3.5% in July; however, the trimmed mean inflation rate, starting from 3.3% in March, increased by 0.1 percentage point each month in April, May and June, remaining unchanged at 3.6% in July, persistently above the central bank's 2% to 3% target range. This indicates that although headline inflation has moderated, core inflation remains highly sticky, and returning inflation to target still faces challenges. On the other hand, rising energy prices add uncertainty to Australia's inflation outlook. In July, Brent crude oil futures prices rose overall, briefly breaking through $100 per barrel. Data released afterward showed that Australia's automotive fuel prices rose 7.5% month-on-month in July after three consecutive months of decline. Rachel McRillick, head of price statistics at the Australian Bureau of Statistics, noted that the fuel price increase was driven by both higher international oil prices and the partial withdrawal of government fuel excise tax relief measures. Data released by the Australian Bureau of Statistics on the 30th showed that in August, headline CPI rose 0.4% month-on-month, with the annual growth rate rising from 3.5% the previous month to 4.0%; while trimmed mean CPI rose 0.2% month-on-month, with the annual growth rate unchanged at 3.6%. The ANZ research team believes that the 6-month annualized trimmed mean inflation trend remains concerning, and the September oil price rebound could bring a new round of food price increases in the coming months. Recently, the situation in the Middle East has continued to disrupt global energy markets, with international oil prices rising significantly and remaining volatile at high levels. In its monetary policy statement, the RBA said that the outlook for domestic economic activity and inflation remains highly uncertain. The Middle East conflict remains unresolved and global oil supply is disrupted, putting sustained upward pressure on global and Australian domestic energy prices and inflation. At the same time, if the uncertainty persists for a long time, Australia's domestic and external economic environment could also be dragged down. RBA Governor Michele Bullock said in mid-September that Australia's inflation rate has fallen significantly from its peak of 7.9% at the end of 2022 and remained within the 2% to 3% target range during 2024 and 2025. However, starting from the second half of 2025, inflation has picked up again and has consistently been above the target range. Over the past year, both headline and core inflation have been around 3.5% or slightly above that level. She said the rise in inflation partly reflects capacity pressures in the Australian economy, with the Middle East conflict exacerbating the impact. Higher oil prices not only push up inflation by directly raising gasoline prices but also have indirect effects on other price categories—many businesses have passed on input cost pressures from high oil prices to the prices of other goods and services. Due to capacity pressures and the Middle East conflict, Australia's inflation level may remain elevated for some time.

Economy continues to expand, slowing demand impact emerges

Although the annual growth rate has weakened, Australia's economy continues to expand. Data from the Bureau of Statistics shows that in the second quarter of 2026, Australia's gross domestic product grew 0.4% quarter-on-quarter and 2.1% year-on-year. But the impact of slowing demand on Australia's economic growth momentum has already emerged. The Bureau of Statistics report showed that in the second quarter, Australian household consumption was relatively cautious, with the quarterly growth rate falling from 0.5% in the first quarter to 0.4%, and its contribution to GDP decreasing from 0.3 percentage points to 0.2 percentage points. The report said the Middle East conflict has affected Australian household consumption behavior, with higher fuel prices leading to reduced fuel consumption and declines in domestic and international travel spending. Recent data show that household demand still faces some pressure. A report released in September 2026 by Westpac and the Melbourne Institute showed that the consumer confidence index fell 5.2% to 84.4 points that month. The report noted that consumer confidence has returned to near the deeply pessimistic levels seen earlier this year, with fuel prices and interest rates once again the main factors driving changes in consumer confidence. As demand softens, the operating environment for Australian private enterprises has deteriorated. A flash report recently released by financial analysis firm S&P Global showed that Australia's composite purchasing managers' output index fell from 52.7 in August to 50.8 in September, indicating that private sector output grew only slightly that month, the lowest growth rate of the third quarter. Specifically, the services PMI business activity index fell from 53.2 in August to 51.4, and the manufacturing PMI output index fell from 49.6 to 46.4. Meanwhile, the manufacturing PMI also fell into contraction territory in September, dropping from 52.0 to 49.3. The report showed that weak demand is the main reason for the overall slowdown in private sector output growth, especially the decline in new orders in manufacturing dragging down overall new business growth in the private sector. Corporate employment fell for the first time in four months, and business confidence dropped to a three-month low and further below the long-term average. These signals indicate that, with interest rates at high levels and cost pressures persisting, the impact of slowing demand on Australian business operations is becoming evident. At the same time, Australia's labor market has cooled slightly. Bureau of Statistics data showed that in August, Australia's unemployment rate rose from 4.5% in July to 4.6%, with the number of unemployed increasing by about 28,200. However, employment increased by 39,500 during the same period, and hours worked rose 0.7% month-on-month, indicating that the job market overall still maintains some resilience. But ANZ senior economist Jasmine Zheng said that as higher interest rates continue to suppress demand, Australia's economic growth momentum is expected to slow in the coming months, labor market conditions will gradually ease, and the unemployment rate will gradually rise. Although demand and business activity have cooled, capacity pressures in the Australian economy have not disappeared. In its September monetary policy statement, the RBA pointed out that the country's domestic capacity still faces pressure. When facing cost pressures, some businesses have already raised prices for goods and services, while others are considering price increases. At the same time, business investment and debt growth remain strong. Bullock noted that in September the RBA considered keeping rates unchanged, partly because of significant uncertainty in judging domestic capacity pressures. She said both the output gap and labor market tightness are difficult to estimate accurately, usually requiring judgment through indicators such as inflation data and unit labor costs. AI-related investment also brings new implications for economic growth and inflation. On one hand, AI-related demand is driving rapid increases in global technology product prices, adding to global inflation pressure; on the other hand, AI-related investment continues to support economic growth in Australia's major trading partners, offsetting some of the adverse effects of the Middle East conflict on economic activity and strengthening Australia's external demand. Bullock said the AI boom is also increasing Australia's domestic demand, with materials and construction services needed for data center construction bringing some domestic demand, while the construction industry is already facing pressure from demand exceeding supply. In addition, although AI investment may bring productivity gains and supply expansion in the future, this process takes time. She said this means AI investment may create a timing mismatch between increased demand and improved supply capacity in the short to medium term, which is also a challenge facing various countries.

Institutions bet on November rate hike, September may not be the end of this cycle

Major Australian financial institutions believe the September monetary policy statement sent a hawkish signal, with some predicting the RBA will raise rates again this year, possibly in November. The September monetary policy statement explicitly stated that the RBA will continue to take necessary measures to bring inflation sustainably back to target and will raise rates further if necessary. Adam Boyton, head of Australian economics at ANZ, said the hawkish language in the statement opened the door to further rate hikes. Boyton noted that although the statement contained some dovish elements, such as falling capital city housing prices, a significant reduction in newly issued housing loans and slowing consumer spending, these factors have been offset by hawkish signals including strong inflation data and energy price surges triggered by the Middle East conflict. Moreover, despite uncertainty in the global environment, stronger-than-expected growth in major trading partners and the boost from AI-related investment have smoothed external downside risks. Therefore, he believes another RBA rate hike in November is now a high-probability event. Westpac chief economist Lucy Ellis also believes there are few obstacles to another RBA rate hike in November. Based on the RBA's current stance, unless the Middle East conflict is durably resolved beforehand or other factors significantly reduce Australia's energy costs emerge, the likelihood of another rate hike in November is relatively high. However, she also said that considering the cumulative effect of multiple rate hikes, the slowing labor market and the possibility of further weakness in the housing market, the threshold for taking further rate hike measures after November will be much higher.