The Reserve Bank of Australia saw higher oil prices, AI investment and limited spare capacity as threats to its inflation outlook. Members chose a September rate rise despite a weakening housing market.
The Reserve Bank of Australia’s meeting minutes released on October 13 show that energy costs, demand from artificial intelligence investment and domestic capacity constraints helped drive its September rate increase. At the September 28–29 meeting, the board voted unanimously to raise the cash rate by 25 basis points, from 4.35% to 4.60%.
Members also considered leaving rates unchanged. Falling house prices, the possibility of weaker consumption and the delayed effects of earlier increases supported waiting. The board ultimately gave greater weight to the risk that inflation would remain high for longer than expected.
Oil and investment demand changed the inflation assessment
Three risks identified in August were beginning to materialise: higher oil prices following an escalation of the Middle East conflict, faster global AI investment and less spare capacity in Australia than previously estimated. Petrol and diesel prices were 13% above the levels assumed in the August forecasts. That comparison does not mean fuel prices rose 13% in a month.
AI investment was supporting demand and raising the cost of inputs including computing equipment and software. Australian private business investment had grown by more than 10% over the year. Data centres and renewable energy projects were among the areas of strength, although the expansion was not confined to those industries.
Underlying inflation and services prices in July had also exceeded forecasts. Bank staff attributed the surprise mainly to domestic capacity pressures. Weak productivity growth and elevated unit labour costs made it harder for inflation to fall quickly.
The August outlook had inflation returning to the midpoint of the 2–3% target range around late 2027. The forecast assumed a period of below-potential growth, recovering productivity and stable inflation expectations. Members judged that rising costs could delay the return to target.
Why weaker housing and employment did not prevent a rise
The case for holding rates cited a faster-than-expected decline in house prices and a marked fall in new housing loans. Scheduled mortgage payments had reached about 10% of household disposable income. The full effect of previous tightening on consumption had yet to become clear.
Unemployment rose to 4.6% in August, partly reflecting increased labour force participation. Members cautioned against placing too much weight on one month’s figures because of methodological changes to the labour force survey. Forward-looking employment indicators remained relatively resilient.
Arguments for an increase included protecting inflation expectations and the possibility that the existing rate was less restrictive than assumed. Members also discussed how higher interest rates overseas and a weaker Australian dollar could ease domestic financial conditions.
No new rate decision was made today. The 4.60% rate was announced on September 29 and took effect on September 30. The document released on October 13 provides the reasoning and risks considered at that meeting.
Governor Michele Bullock described the board’s approach at the September 29 media conference:
“The Board will increase interest rates again if that’s what’s needed to get inflation down.”
The minutes do not commit the board to an increase on a particular date. Its next rate decision is due on November 3. The official post below and the media conference video are dated September 29, 2026, documenting the decision that preceded today’s minutes.
