Bullock’s rate rise and the price of bringing inflation down

Why the RBA raised rates in a slowing economy

On 29 September, the Monetary Policy Board unanimously lifted the cash-rate target by 25 basis points to 4.60 per cent. It was the fourth rise this year, bringing the cumulative increase to one percentage point. Further increases remain conditional; Bullock did not announce a predetermined path. [2] [3]

The most useful distinction in her explanation is between an economy’s growth rate and its capacity. Demand does not have to be booming to exceed what businesses can sustainably supply. If capacity grows weakly, even modest additional spending can run into shortages, rising costs and higher prices.

The national accounts illustrate the uncomfortable combination: GDP rose 0.4 per cent in the June quarter, but GDP per person was flat. The Productivity Commission reports that output per hour was also flat that quarter and 0.2 per cent lower than a year earlier. Weak living-standard growth and inflation pressure can therefore coexist. [6] [7]

Bullock identifies three overlapping pressures: domestic capacity constraints, prolonged energy disruption in the Middle East, and AI-related investment and input costs. She explicitly says the domestic problem preceded the conflict. That is a useful corrective to any explanation that attributes the whole problem to events overseas. [1]

There is still substantial uncertainty in that diagnosis. The amount of spare capacity cannot be observed as easily as a cash-rate announcement. It is estimated from imperfect indicators. The Bank should explain what has changed in those estimates and how strongly the evidence supports another increase, rather than expecting the public to accept the diagnosis simply because it is the central bank’s.

How higher interest rates affect the wider economy

Higher rates cannot reopen an oil route or manufacture another transformer. They can discourage some borrowing and spending, alter investment decisions, affect asset prices, and support the dollar relative to what it would otherwise have been. A stronger currency can reduce import costs, although that outcome depends on overseas rates and other forces too. [9]

These are simplified mechanisms, not predictions for each household. RBA research finds important exchange-rate effects and policy impacts that generally peak after about one to two years; its models differ in their estimates. [8] [9]

The RBA’s strongest argument is about preventing an initial shock from spreading. Businesses facing persistent fuel and transport costs may increasingly pass them on. If higher inflation becomes normal in price-setting, restoring stability later could require a harsher slowdown. The Bank’s own research recognises that responding to supply shocks involves a genuine trade-off with economic activity. [10]

The strongest objection concerns the additional dose. February, March and May’s increases are still working through the economy. Adding another rise before their full effect is visible risks overdoing it. Equally, waiting for every lagged effect to arrive could allow inflation to become more persistent. This is a judgement under uncertainty, and the case for this particular increase deserves scrutiny on that basis.

Who carries the cost

The immediate pressure is clearest for variable-rate borrowers and businesses with floating-rate debt. But the wider effects reach renters, jobseekers, savers, exporters and people whose income depends on customers continuing to spend. The costs are uneven, and the benefits of lower inflation arrive on a different timetable.

Potential channels, not measured effects of the September rise. People can belong to several groups. Card size does not represent population shares or the size of any gain or loss.

National averages cannot settle the fairness question. Large offset balances elsewhere in the system do not pay the mortgage of a family with no buffer. Likewise, a smaller net cash-flow effect in an economic model can conceal substantial losses for borrowers and gains for savers. The RBA’s modelling paper explicitly acknowledges limits in how it captures the distribution between households. [8]

Housing is the most difficult feedback loop. Bullock acknowledges that falling sale prices and expensive materials can make new developments less viable. Higher financing costs can compound that problem. Restraining demand may help contain inflation now while making it harder to expand the housing supply needed later. That does not prove the rate decision is wrong. It makes a credible construction and infrastructure response more urgent. [1] [9]

More unemployment is not a harmless statistical adjustment

Bullock is right that unemployment can rise while employment also grows. In August, the ABS recorded 39,500 more employed people and 28,200 more unemployed people as labour-force participation increased. But full-time employment fell while part-time employment rose. Monthly estimates have sampling variability; the ABS recommends looking at trends. The headline alone does not capture security, hours or the difficulty of finding suitable work. [5]

Slower hiring can still impose a serious cost on school leavers, people returning to work and those already struggling to find a job. Conversely, it is too simple to say an unemployment rate above a particular number automatically proves the RBA has failed its full-employment objective. The sustainable level is uncertain and depends on the economy’s structure. That uncertainty is a reason for caution and transparency. [11]

Productivity and AI deserve more precise questions

One of the most consequential answers comes late in the conference: Bullock rejects the idea that Australia is experiencing a wage–price spiral. She distinguishes wage growth from unit labour costs, which also depend on how much output is produced per hour. Iain Ross, a member of the Monetary Policy Board, had made the same broad distinction in a speech a week earlier. [1] [12]

Productivity is not a measure of how hard an individual tries. Better tools, skills, management, infrastructure and work organisation can raise output per hour. Poorly designed systems can waste the effort of conscientious staff. Asking workers simply to work harder avoids the institutional and investment questions.

The AI boom sharpens those questions. Building data centres can compete for construction workers, materials and power before any economy-wide productivity gains arrive. Imported equipment limits how much of the investment becomes immediate Australian demand, a qualification Bullock herself makes. Future efficiency gains remain a possibility whose timing and distribution matter. [1] [26]

A serious policy response would ask which projects add usable energy and skills, which constrain other construction, and whether ordinary businesses can turn AI investment into better output. It would measure results rather than treating investment expenditure as proof that the productivity problem is already being solved.

The political conversation

The following assessments distinguish responses to this decision from earlier policy positions. Each argument is tested for what it explains and what it still needs to demonstrate. They are assessments of particular claims, not scores of a party’s honesty or its voters.

Select a person to open the argument and assessment. Logos identify the source or affiliation; they do not imply endorsement.

Jim ChalmersLabor · TreasurerDirect responseReal external shocks and an incomplete domestic explanation+

Direct response · Jim Chalmers · 29 September 2026

The Treasurer acknowledged household pressure, highlighted the Middle East conflict and global AI demand, and defended the government’s cost-of-living, budget and productivity approach. [13]

What holds up: imported energy disruption is a real shock. Australian governments cannot control world oil prices, and some public expenditure can build capacity as well as support demand.

What needs more: an overseas explanation is incomplete when the RBA identifies domestic constraints that predate the conflict. A better budget result than forecast does not, by itself, reveal how much current fiscal policy adds to demand. The spending mix, tax settings, state budgets and timing all matter. Labor should explain that combination rather than treating global disruption as the end of the discussion.

Tim WilsonLiberal Party · Shadow TreasurerDirect responseA valid spending question and an overconfident causal claim+

Direct response · Tim Wilson · 29 September 2026

The Shadow Treasurer blamed government spending, emphasised that the first increase of 2026 preceded the Iran war, and called for reducing waste alongside an annual personal-tax-cut guarantee. [14]

What holds up: public demand belongs in the inflation discussion. The chronology also challenges a war-only explanation.

What needs more: neither point measures how much Commonwealth spending caused this increase. Bullock declined to single out a culprit. Spending reductions should be assessed by what is removed, when demand changes, and what happens to services and productive capacity. Tax cuts also leave more spending power with households unless offset. The appropriate test is the whole fiscal package, not one side of the ledger.

Pauline HansonOne NationDirect reactionImmediate breathing room with a retirement and demand trade-off+

Direct reaction · Pauline Hanson · 29 September 2026; policy published 7 September

Hanson called for Chalmers to implement One Nation’s Super Pay Boost and resign. Her resignation demand expresses political accountability; it is not evidence that the Treasurer alone caused the decision. [16]

▶ Hanson’s response · video listing

The proposal would let eligible renters and owner-occupier borrowers redirect one quarter of future compulsory super contributions into take-home pay for up to 36 months. At the 12 per cent contribution rate, that means 3 per cent of wages before concessional tax, with at least 9 per cent of wages continuing into super. Existing balances remain untouched. This is a proposal, not an available entitlement. [17]

What holds up: avoiding arrears or losing a home can be more urgent than increasing retirement saving. A voluntary option recognises that households face different pressures.

What needs more: bringing future savings forward does not create additional goods or services. It reduces subsequent retirement accumulation and may add current demand. The inflation effect depends on participation and whether the money is spent, saved or used to reduce debt. That needs modelling. It would be unfair to portray the policy as raiding existing balances, and equally misleading to present it as cost-free inflation relief.

Nick McKimAustralian GreensEarlier policy contextDistribution and market power require evidence about particular markets+

Earlier policy context · Nick McKim · 19 May 2026; no direct 29 September response verified

McKim’s May statement cited RBA research about changes in corporate price-setting, argued that corporate pricing contributed to inflation, and advocated broader anti-price-gouging and competition powers. This provides a relevant alternative emphasis; it is not a verified response to the September decision. [18]

What holds up: competition and pricing power deserve scrutiny. Households should not bear avoidable costs created by weak competition, and monetary policy is poorly targeted at an individual market failure.

What needs more: evidence of changed price-setting warrants examination, but the next question is whether those changes reflect market power, demand or input costs. RBA research distinguishes those mechanisms and cautions against reading a simple causal story from profit totals. A persuasive reform case should identify the conduct and show how the proposed remedy would reduce avoidable price pressure. [19]

David PocockIndependent senatorEarlier policy contextBuild capacity before assuming the benefits of AI+

Earlier policy context · David Pocock · 9 June 2026

Pocock’s data-centre intervention warned about electricity-system pressure and the need for additional generation and storage. It is relevant to the sequencing problem Bullock describes, but is not a September rate-decision response. [26]

Assessment: requiring credible plans for energy and infrastructure can help expose costs that otherwise fall on other users. The challenge is to distinguish constraints that protect system reliability from delays that unnecessarily obstruct useful investment. Neither an automatic approval nor an automatic rejection answers that question.

Migration is another argument likely to enter this debate. Large population changes can worsen pressure in particular rental markets. Migrants also add workers and productive capacity. RBA analysis finds those effects cannot be reduced to a universal migration-equals-inflation equation. The useful question is whether housing, infrastructure, skills and settlement patterns are keeping pace. [27]

What the media and other voices add

Coverage is most useful when it exposes a different mechanism or tests a claim. Counting headlines by political label would tell us much less.

ABC NewsMichael Janda29 September · analysis

Challenges a government-spending-only explanation.

Reading it critically: Useful causal breadth. Assess this interpretation separately from ABC’s straight reporting.

Source and attribution ↗

ABC NewsGareth Hutchens29 September · reporting

Explains the decision and the Governor’s account of inflation pressure.

Reading it critically: Provides the event record underpinning this analysis.

Source and attribution ↗

AAP · carried by Australian ConveyancerJacob Shteyman30 September · reporting

Shows disagreement among bank and investment economists about the next move.

Reading it critically: Disagreement reveals uncertainty; it does not make every scenario equally likely.

Source and attribution ↗

ACTUOrganisational statement24 September · pre-decision advocacy

Urged a pause as unemployment increased.

Reading it critically: Rates cannot end the war, but that alone does not show they cannot limit its wider inflation effects.

Source and attribution ↗

ACOSSOrganisational statementPre-decision warning · page dated 29 September

Warned about employment losses and argued for other cost measures.

Reading it critically: Includes people without mortgages. This was a prospective warning, not an observed effect of this rise.

Source and attribution ↗

Australian Industry GroupOrganisational statement29 September · advocacy

Called for productivity, regulatory and spending reform.

Reading it critically: The detail and timing of specific reforms matter more than the general label “productivity”.

Source and attribution ↗

The economist disagreement is consequential. AAP’s report identifies three different readings of what comes next.

Paul Bloxham

HSBC

Expected another rise in November.

Shane Oliver

AMP

Expected slowing housing and employment to prevent another near-term rise.

Ashwin Clarke

Commonwealth Bank

Expected a hold, while recognising the risk of November tightening.

Views reported on 29 September. These are forecasts, not announced RBA decisions. Source: Jacob Shteyman / AAP [22].

No suitable representative poll about public approval of this particular decision was verified for this article. Market pricing, an economist survey, social comments and consumer confidence measure different things. None can responsibly be relabelled as the percentage of Australians who support the hike.

What households expected before the decision

A useful public survey asks a different question from political approval. In the Westpac–Melbourne Institute September survey, 64 per cent expected mortgage rates to rise over the next twelve months, compared with 59 per cent in August. Both surveys preceded the 29 September decision. [29] [30]

Public expectations

More people expected higher mortgage rates

Share of respondents expecting an increase over the next 12 months · 0–100% scale

August

59%

Sept.

64%

Each full track represents 100%. The unfilled portion includes other responses; it does not represent opposition to a rate rise.

Expectation is not approval. These findings do not show whether people wanted a rise, supported the RBA or blamed the government. The five-percentage-point change is descriptive; statistical significance has not been established.

Who conducted the survey, and what can it tell us?

Matthew HassanAuthor, September bulletin · Westpac

The published method describes random selection of Australian adults aged 18 and over by OZINFO and DYNATA, with population-distribution weighting. It does not disclose the verbatim rate question, interview mode, response rate or design effect. These results are context for household expectations, not a causal test of the September hike. [29] [30]

Two further arguments worth testing

Coolabah Capital · Livewire MarketsKieran Davies29 September · authored commentary

Davies argues that Bullock softened the statement’s tightening message by emphasising jobs and the possibility that earlier increases might suffice.

Reading it critically: the communications question is useful: how should people distinguish a warning from a likely next step? A fair alternative reading is that conditional language preserves flexibility. Clarity need not mean promising another rise.

Read the commentary and attribution ↗

The Courier-MailInstitutional editorial23 September · before the meeting

The editorial backed David Koch’s demand to quantify government spending’s contribution and publish a counterfactual cash-rate path.

Reading it critically: useful accountability needs a specified alternative budget: which spending changes, when, and with what consequences for taxes, services and productive capacity? An estimate without those assumptions risks false precision.

Read the editorial and attribution ↗

These contributions sharpen the questions for the Bank and governments. The relevant test remains the quality of the mechanism, evidence and trade-offs each argument identifies.

Claims that need careful handling

What a better policy response would look like

My conclusion is that monetary restraint should be accompanied by a more explicit account of the alternatives and their distribution. No single measure removes the trade-offs, and supply reforms generally take time.

1. Explain the additional tightening. The RBA should show what evidence changed its judgement since August, the plausible effects of earlier increases still in the pipeline, and what would lead it to stop. Publishing uncertainty makes the decision more accountable.
2. Assess the whole budget. Governments should distinguish broad demand support from targeted hardship relief and capacity-building investment. Any proposal for spending or tax cuts should identify the demand effect, funding, timing and people affected. A spending total alone cannot do that work.
3. Protect the housing supply response. Prioritise serviced land, workable approvals, construction capability and infrastructure coordination. Test support against additional completed homes, rather than simply increasing the amount buyers can bid for a limited stock.
4. Make productivity concrete. Reduce avoidable duplication, improve skills and technology adoption, and investigate competition problems where evidence warrants it. Measure output, service quality and user experience. Cutting a useful service is not automatically a productivity improvement.
5. Plan for energy and AI together. Assess data centres and other major investments against credible power, water, network and workforce plans. Near-term demand and longer-term benefits should both be visible, including who pays for shared infrastructure.

Those are complementary responsibilities, not a promise that reform can cancel the next mortgage bill. The strongest objection is that a “do everything better” agenda can become an excuse to defer difficult restraint. That is why each measure needs an owner, a delivery date and evidence of results, while the RBA remains answerable for its own decisions.

What Australians should take from this

Inflation is still a real problem. Household hardship is also a real problem. Recognising one does not resolve the other. The most useful public debate asks how much restraint is necessary, how its burden is distributed and which policies can expand the economy’s capacity without merely bidding up the same scarce resources.

Bullock has explained why the Bank thinks action is needed. The next test is whether that action delivers lower inflation without avoidable damage to jobs, housing and financial security. Governments, businesses and the RBA all have responsibilities in making that outcome more likely.