RBA’s Sarah Hunter Says Stronger Inflation Could Trigger Another Rate Hike

Reserve Bank of Australia Assistant Governor Sarah Hunter said the central bank may need to raise interest rates again if inflation proves stronger than its current forecasts, keeping another tightening move firmly in play ahead of the Monetary Policy Board’s late-September meeting. The warning comes after the RBA lifted its cash rate three times earlier this year and then held it at 4.35% in June and August.

Speaking at the AFR Property Summit in Sydney on September 8, Hunter said inflation is the RBA’s “top priority right now.” In the RBA’s published transcript of the fireside chat, she said that if inflation appears likely to run stronger than the Bank expects, the Board “may well have to raise interest rates to tackle that.” She did not predict the outcome of the next meeting and stressed that more information will arrive before policymakers meet again, making the warning conditional rather than a signal that a September increase has already been decided.

Upside inflation risks are now the central issue

Hunter’s comments closely track the risk assessment in the RBA’s August Statement on Monetary Policy. Staff judged the inflation outlook to be skewed to the upside, pointing to the possibility of higher global oil and non-energy prices, faster pass-through of those shocks into the Australian economy and more persistent domestic capacity pressures. The Bank’s goal is to keep annual consumer price inflation between 2% and 3%, with policy set so inflation is expected to return to the midpoint of that range.

The August forecasts still envisage a gradual decline in price pressures rather than a quick return to normal. The RBA projected headline CPI inflation at 3.6% at the end of 2026 and 2.8% by June 2027. Trimmed mean inflation, which the Bank watches closely as a measure of underlying pressure, was forecast at 3.3% at the end of 2026 and 3.0% by June 2027. It is not projected to be around the midpoint of the target range until 2028.

One development has become more uncomfortable since those forecasts were finalized in early August. Hunter said global oil prices had risen sharply in recent weeks and were already above the assumptions used in the August outlook. Higher oil prices cannot be reversed by Australian interest-rate policy, she said, but the RBA can try to prevent the shock from feeding into domestic demand, inflation expectations and broader second-round price increases.

The latest official inflation figures show why the Board is still cautious. The Australian Bureau of Statistics reported that annual CPI inflation eased to 3.5% in July from 3.8% in June, but annual trimmed mean inflation held at 3.6%. Consumer prices rose 1.0% in July in original terms and 0.6% on a seasonally adjusted basis. The CPI’s Housing group rose 5.0% over the year, food and non-alcoholic beverages rose 3.2%, and recreation and culture rose 2.6%.

Hunter cautioned against reading too much into a single monthly release, but she also highlighted the composition of the July data. Strength showed up in areas tied more closely to domestic conditions, including market services, new-dwelling construction costs and rents. That matters for the RBA because a purely external fuel shock would present a different policy problem from inflation that is also being sustained by demand and capacity constraints inside Australia.

Three 2026 hikes are already weighing on demand and housing

The RBA began 2026 with the cash rate at 3.60%. It raised the rate by 25 basis points in February to 3.85%, again in March to 4.10%, and a third time in May to 4.35%. The June and August meetings then left the rate unchanged, giving the Board more time to assess how the 75 basis points of tightening were passing through to households and businesses.

There are signs that the earlier increases are having an effect. The RBA said in August that banks had passed higher policy rates through to deposit and lending rates, scheduled mortgage payments were relatively high as a share of household disposable income, and demand for new housing loans had weakened. The Bank also estimated that national housing prices had declined 1.6% from their March peak by the time of its August assessment.

Hunter described housing as an important transmission channel for monetary policy. Higher rates can reduce borrowing capacity, slow housing activity and dampen demand, which helps ease inflationary pressure elsewhere in the economy. She said the slowdown in housing was, all else equal, part of the effect the RBA was trying to achieve when it tightened policy earlier this year.

Housing also creates a complication for the inflation outlook. House prices themselves are not included in the CPI, but rents are, and a persistent shortage of new housing supply can put upward pressure on rents. Hunter said the RBA is paying close attention to local rental markets and to the possibility that weaker dwelling construction could eventually tighten supply. She also pointed to strong data-center investment as an additional source of construction demand, noting anecdotal reports that some projects are drawing labour away from other parts of the sector in Sydney and Melbourne.

Broader activity data give the Board evidence of cooling without showing a sharp downturn. The Australian economy grew 0.4% in the June quarter and 2.1% from a year earlier, according to the ABS, with households still behaving cautiously. In July, the unemployment rate rose to 4.5% and employment fell by about 15,800 people in seasonally adjusted terms. Those figures are consistent with some easing in demand and the labour market, but the RBA has continued to judge that capacity pressures remain and inflation is still too high.

September decision remains open

The Monetary Policy Board is scheduled to meet on September 28 and 29, with its decision due on September 29. The timing of the data calendar means policymakers will not receive another monthly CPI report before that decision: the next CPI release is scheduled for September 30. August labour-force figures are due on September 24, alongside other economic and financial information that will feed into the Board’s assessment.

Hunter’s message therefore leaves the RBA with a clearly conditional choice rather than a pre-announced move. If incoming evidence supports the Bank’s forecast that domestic demand is cooling and inflation will gradually retreat, the Board can judge whether the 4.35% cash rate is restrictive enough. If inflation looks likely to exceed that path, especially because domestic price pressures or second-round effects from higher energy costs are proving more persistent, another increase remains available.

The significance of Hunter’s remarks is that she tied the possibility of another hike directly to inflation outperforming the RBA’s forecast, rather than signaling a predetermined September move. The next formal decision arrives on September 29, when policymakers will have to decide whether the three increases already delivered in 2026 are sufficient or whether the upside inflation risks she emphasized require a fourth.