Economists are increasingly pointing towards a Reserve Bank of Australia (RBA) interest rate hike in September, citing persistent and elevated inflation pressures. Current modelling suggests the optimal cash rate should be between 4.75 per cent and 5 per cent, a significant step up from the current 4.35 per cent. The nation’s inflation situation is described as dire, with experts suggesting the RBA may be falling behind the curve in its policy response to rising prices.
Core price pressures have seen a striking acceleration, with the monthly trimmed mean measure jumping to an annualised pace of 4.7 per cent over the three months to July 2026. This marks a material acceleration from the 3.9 per cent six-month annualised pace and the 3.6 per cent 12-month rate, all well above the RBA’s mandated 2.5 per cent target. Compounding this, artificial intelligence (AI) is now identified as a contributing factor to inflation, driving a surge in consumer technology prices. Costs for audiovisual and media services reportedly leapt 10.4 per cent over the year to July, spurred by global supply chain bottlenecks from the AI demand-driven capital expenditure boom.
The all-important $12.8 trillion housing market remains a key consideration for the RBA. National house prices are currently declining at an annualised rate of 11.4 per cent based on the past three months, with drops in Melbourne and Sydney even sharper. Further rate increases, as modelled, could lead to the largest housing correction in modern Australian history, with a potential peak-to-trough loss of about 12 per cent by late 2027 or early 2028. There are also concerns regarding the politicisation of the RBA’s decision-making process, especially given the current government’s influence on board appointments.
