An energy shock has pushed inflation back up just as the economy slows
War in the Middle East sent petrol prices up a third in a single month. The Reserve Bank has lifted rates four times this year to 4.60%, the highest since 2011. Households are cutting back, unemployment has risen to 4.6% and home values are falling — while a boom in data-centre investment keeps growth positive.
CPI · Jul
3.5%
Underlying · Jul
3.6%
Cash rate
4.60%
Unemployment · Aug
4.6%
GDP · year to Jun
2.1%
Wages · Jun qtr
3.2%
AUD/USD
69.9c
Headline transmission
Pick any headline to trace how it travels through the economy
SHOCKFIRST ROUNDINDICATORPOLICYWHO FEELS IT
Middle East war
Hormuz shut 4 Mar
Rebates expire
Bill relief ended
AI & data centres
Capex plans +14.9%
US Fed hikes
3.75–4.00%
Fuel & freight
Brent US$104
Electricity bills
+6.1% y/y in CPI
Investment
Business +10.4% y/y
Bond yields
10-year 5.16%
Trade balance
BOGS −$5.1b
Inflation
3.5% · TM 3.6%
GDP growth
0.4% q/q
Australian dollar
69.9 US cents
RBA cash rate
4.60% · 4 rises
Spending
Households +0.4% q/q
Home values
5 monthly falls
Jobs & wages
Unemp. 4.6%
ASX & markets
ASX 200 8,709
Now tracing · 29 Sep · RBA4.60%
The RBA lifts rates to 4.60% — its fourth rise this year
Dearer fuel and expiring rebates pushed inflation up; the RBA responded by raising rates, which squeezes household spending, pushes home values down and moves share and currency markets.
LeadRBATue 29 Sep 2026 · 2:30pm
The RBA lifts rates to 4.60% — its fourth rise this year
A unanimous decision driven by stubborn inflation and an oil price far above what the Bank assumed only seven weeks ago.
What happened
The cash rate rose 0.25 points to 4.60%, the highest since 2011. Rates have now risen a full percentage point since February, after three cuts in 2025.
Why
Inflation has been stronger than expected. The Middle East conflict has pushed energy prices well above the August forecasts, AI demand is lifting global tech prices, and firms are still raising prices.
What it means
About $98 a month more on a $600,000 loan. Governor Bullock said more rises may not be needed if inflation eases, so markets read it as a “risk-management” hike; the dollar slipped below 70c.
11 stories · every story shows its transmission chain
Markets
29 Sep
ASX
Shares rise despite the rate hike as tech jumps 4.6%
Megaport rallied after announcing almost $1 billion of AI-infrastructure contracts and Codan jumped about 21% to a record on a strong trading update. Utilities (−0.8%) and energy (−0.7%) fell, even though Wall Street had slipped overnight.
Why it mattersAI-related investment is one of the few parts of the economy still growing strongly.
TransmissionAI & data centres→Investment→GDP growth→RBA cash rate→ASX & markets
8,709
ASX 200 · +0.34%
Markets
29 Sep
FX markets
The dollar slips below 70c after the RBA decision
It briefly rose to 70.3c on the rate rise, then fell as Governor Bullock’s comments were read as less hawkish and the US dollar stayed strong on expectations of further Fed rises.
Why it mattersA weaker dollar makes imported fuel dearer, adding to inflation.
Oil is up about 15% in a month after drones from Iraq briefly shut a Saudi export route and Iran-aligned Houthis threatened the Bab el-Mandeb strait. Australia imports more than 90% of its fuel.
Why it mattersEvery US$10 a barrel adds roughly 10c a litre at the bowser.
TransmissionMiddle East war→Fuel & freight→Inflation→Trade balance
US$104
Brent · +55% y/y
Global
16 Sep
US Federal Reserve
The US Fed raises rates to 3.75–4.00%
The Fed is fighting the same energy-driven inflation. Higher US rates strengthen the US dollar and push up bond yields worldwide, and signal one more rise this year.
Why it mattersThe RBA’s rate is now only 0.60 points above the Fed’s, limiting support for the Australian dollar.
TransmissionUS Fed hikes→Bond yields→Australian dollar
4.00%
Upper bound
Jobs
Sep
ABS · August data
Unemployment rises to 4.6%, the highest since 2021
39,000 more people had jobs, but 28,000 more were looking for work as participation jumped to 67.1%. Part-time jobs rose 46,000 while full-time jobs fell 6,000.
Why it mattersA looser labour market should slowly ease wage and price pressure — exactly what the RBA wants.
TransmissionGDP growth→RBA cash rate→Jobs & wages
4.6%
Unemployment
Growth
Early Sep
ABS · June quarter
The economy grows 0.4% as households hold back
Household spending rose just 0.4%; travel fell while electric-vehicle purchases jumped 10.3%. Business investment dipped in the quarter but is up 10.4% on a year ago on data centres and renewables.
Why it mattersPer-person growth is only 0.8% a year — living standards are barely rising.
The current account deficit widens to $27.2 billion
The goods and services balance fell further into deficit (−$5.1b) as import prices rose 3.5% and export prices 1.9%, cutting the terms of trade 1.6%.
Why it mattersA falling terms of trade means each unit of exports buys fewer imports — a hit to national income.
TransmissionMiddle East war→Fuel & freight→Trade balance
−$27.2b
Current account
Bonds
1 Sep
Bond markets
The 10-year bond yield hits 5.16%, highest since 2011
Part of a global bond sell-off: Japan’s 10-year yield reached 3% and the US 30-year 5.2%. Investors want more compensation for inflation risk and rising government debt.
Why it mattersFixed mortgage rates and business borrowing costs follow bond yields.
Sydney fell 1.4% and Melbourne 1.1%; only Darwin rose. 93% of capital-city suburbs fell over winter, while rents are still up 5.7% a year.
Why it mattersFalling home values make households feel poorer, which weighs on spending.
TransmissionRBA cash rate→Home values
−0.9%
National, Aug
Inflation
26 Aug
ABS · July CPI
Inflation eases to 3.5%, but underlying inflation holds at 3.6%
Down from 3.8% in June. Electricity is up 6.1% on a year ago as rebates ended, fuel rose 7.5% in the month, and rents are up 3.6%.
Why it mattersUnderlying inflation is what the RBA targets — and it is not falling.
TransmissionMiddle East war→Fuel & freight→Rebates expire→Electricity bills→Inflation
3.5%
CPI · annual
Wages
Aug
ABS · June quarter
Wage growth slows to 3.2%
Public-sector pay (3.4%) is still outpacing the private sector (3.1%). 79% of jobs got rises under 4% — the largest share since 2022.
Why it mattersWith prices up 3.8% over the same year, real wages are falling again.
TransmissionInflation→RBA cash rate→Jobs & wages
3.2%
Wage Price Index
Indicator briefings
The story behind each headline number
Inflation
Fuel lit the fire; domestic costs keep it burning
3.5%
Headline CPI, year to July
3.6%
Underlying (trimmed mean)
Why it’s happening
01Oil shock. Hormuz closed on 4 March. Australia imports over 90% of its fuel, so petrol jumped from 171c to 228c a litre in March and diesel from 181c to 256c.
02Rebates ended. Electricity bills rose 21–32% over the year as government rebates expired — a policy effect more than a surge in underlying power costs.
03Home-grown pressure. Underlying inflation has crept from 3.2% to 3.6% since November as rents, building costs and services rise faster than productivity.
Watch: August CPI, Wed 30 Sep at 11:30am. The fuel excise cut ended in July and Brent is back above US$100.
Headline CPITrimmed meanRBA target 2–3%
Where prices are rising · year to July 2026
Electricity6.1%
New dwellings5.7%
Housing (group)5.0%
Rents3.6%
Food & drinks3.2%
Recreation & culture2.6%
Interest rates
From cutting to hiking in six months
4.60%
Cash rate, 29 Sep
+1.00
Points added in 2026
Why it’s happening
01Inflation stuck above target. The RBA says recent inflation was stronger than expected and firms are still raising prices. Underlying inflation is 3.6%.
02Energy and expectations. Oil is far above what the RBA assumed in August, and short-term inflation expectations remain elevated.
03Global rates are rising. The US Fed hiked to 3.75–4.00% on 16 Sep, and Australia’s 10-year bond yield hit 5.16% on 1 Sep, the highest since 2011.
Watch: Next decision Tue 3 Nov. Governor Bullock signalled more rises may not be needed if inflation eases.
What it means for a mortgage
On a $600,000, 30-year variable loan priced about 2 points above the cash rate, repayments are now around $3,830 a month — roughly $390 more than at the August 2025 low, and about $98 more than before yesterday’s rise.
Illustrative calculation. Try your own numbers in Financial Markets.
10-year bond yield
5.16% 1 Sep
US Fed funds
3.75–4.00%
Gap to US (upper)
+0.60 pts
Growth
Investment is doing the heavy lifting; households are not
0.4%
GDP, June quarter
2.1%
Over the year · 0.8% per person
Why it’s happening
01Cautious households. Spending rose just 0.4%. Travel fell while electric-vehicle purchases jumped 10.3% as people moved away from petrol; saving rose to 6.5% of income.
02The AI build-out. Business investment is up 10.4% on a year ago, led by data centres and renewables. Firms plan $201b of capex in 2026–27, up 14.9%.
03Falling productivity. Output per hour fell 0.2% over the year (the pre-pandemic norm was +1.2%), lifting unit labour costs 3.6% — fuel for inflation.
Watch: The RBA expects growth to slow to 1.4% by December. September-quarter GDP is due in early December.
What moved in the June quarter · % change on previous quarter
Dwelling investment+1.6
Exports+0.8
Imports+0.5
Household spending+0.4
Business investment−0.5
Public investment−1.3
Business investment is still up 10.4% on a year ago. Scale ±2%.
Jobs & wages
Unemployment is rising because more people want work
4.6%
Unemployment, August
67.1%
Participation rate
Why it’s happening
01More people want work. Living costs and higher repayments are pushing more people — especially women and older workers — into the job market.
02Hiring has slowed. Jobs are growing about 1–1.5% a year, below working-age population growth of 1.7%. August added 46,000 part-time jobs but lost 6,000 full-time.
03Real wages are falling. Wages grew 3.2% while prices rose 3.8% (June). 79% of jobs had pay rises under 4%, the highest share since 2022.
Watch: September labour force in mid-October. The RBA expects 4.5% by December and 4.7% by the end of 2027.
Unemployment rate · monthly
Pay vs prices · year to June 2026
Wage Price Index3.2%
Consumer prices3.8%
Real wage changePrivate 3.1% · public 3.4%−0.6 pts
Housing
Rate rises have tipped home values into decline
−0.9%
Home values, August
−3.6%
Since the March peak
Why it’s happening
01Borrowing power cut. Four rate rises since February have reduced how much buyers can borrow and dented confidence; sales are down 15.5% on a year ago.
02Listings piling up. Total listings are 24% above last year even though new listings are down 6% — homes are simply taking longer to sell.
03Rents still climbing. Rents are up 5.7% over the year, lifting gross yields to 3.79%, the highest since September 2019.
Watch: Cotality’s September index on 1 October, and whether spring listings add to the stock of unsold homes.
Change in home values, August 2026
Sydney−1.4%
Melbourne−1.1%
Brisbane−1.0%
National−0.9%
Perth−0.8%
Adelaide−0.8%
Hobart−0.2%
Darwin+0.6%
Median value
$912,885
Suburbs falling (winter)
93%
Sydney from Feb peak
−7.1%
Trade & the dollar
The terms of trade are falling as import bills jump
−1.6%
Terms of trade, June qtr
69.9c
AUD/USD, 29 Sep
Why it’s happening
01A bigger oil bill. Petroleum import prices rose 47.1% in the June quarter. Overall import prices rose 5.7% against 1.1% for exports.
02Coal up, gold down. Asian buyers switched from LNG to coal after Qatar’s Ras Laffan plant was hit, lifting coal prices; gold fell 8.8% as US rates rose.
03A dollar pulled both ways. The rate gap with the US lifted the dollar above 72c in February; the war then sent investors into US dollars, pulling it back below 70c.
Watch: The current account deficit widened to $27.2b, with goods and services in deficit for the first time since 2017.
Trade prices · June quarter 2026, % change
Import prices+5.7%
Export prices+1.1%
Terms of trade−1.6%
Commodity prices that matter for Australia
Brent crudeUS$104.46/bbl28 Sep · up about 55% on a year ago · we import it
Iron ore≈US$100/tSteady as China caps steel output
Thermal coal≈US$147/tNewcastle · lifted by Asia’s switch from LNG
GoldUS$4,333/oz2 Sep · 22% below January’s record
Outlook
Where the RBA thinks this goes — and what could change it
RBA forecasts, August 2026 Statement on Monetary Policy, year-ended. Made before the September rise; assumed a cash rate of about 4.4% by December.
Forecast
Dec 2026
Jun 2027
Dec 2027
Jun 2028
GDP growth
1.4%
1.5%
1.6%
1.6%
Unemployment
4.5%
4.6%
4.7%
4.8%
CPI inflation
3.6%
2.8%
2.6%
2.4%
Trimmed mean
3.3%
3.0%
2.6%
2.4%
Could push inflation higher
A wider Middle East conflict, including threats to the Bab el-Mandeb strait and Saudi export routes
AI-driven price rises for technology goods
Persistent capacity pressure at home
Could slow the economy faster
A deeper housing correction
Households cutting spending harder as real wages fall