Rising energy prices increase inflation risks, Reserve Bank of Australia expected to implement the fourth rate hike of the year next week

According to Zhixun Finance APP, as energy prices rise and further highlight the risk of increased inflation, economists state that the Reserve Bank of Australia (RBA) will raise its key interest rate next week and warn of a possible further hike in November. Current pricing in the money market indicates a roughly 90% chance that the RBA will raise the cash rate by 25 basis points to 4.6% next week. If the RBA hikes rates as expected, it will mark the central bank’s fourth increase this year.

Economist James McIntyre, who previously believed the RBA would keep rates unchanged for the remainder of 2026, said in a research report: “Repeated hawkish signals suggest the RBA’s patience, already running thin, is nearing exhaustion. Further escalation in energy prices could prompt businesses to pass on higher input costs to consumers.”

James McIntyre is not the only market participant to have recently changed his expectations of RBA interest rates. ANZ Bank now expects the RBA to raise rates again in September while maintaining an expectation for another hike in November. UBS has adjusted its base scenario to anticipate back-to-back hikes in September and November. Both institutions expect the key rate to rise to 4.85%, which would be the highest level since 2008. Commonwealth Bank of Australia has also brought forward its rate hike forecast from November to next week, citing Brent crude prices remaining above $100 per barrel.

The RBA was among the first developed economies to begin tightening monetary policy, having raised rates at the first three policy meetings this year to counter resurgent inflation. In recent weeks, with energy prices soaring and the Middle East conflict unlikely to end soon, the Federal Reserve, the Bank of Japan, and the European Central Bank have all raised borrowing costs.

The RBA’s nine-member committee will meet from September 28 to 29. RBA Governor Michele Bullock said on Friday that some of the upside inflation risks previously highlighted by the Bank “appear to be materialising.” She is set to participate in a fireside chat at 1 p.m. Sydney time, during which hawkish signals are expected.

Rising fuel prices in Australia

James McIntyre pointed out that per capita diesel consumption in Australia is among the highest globally, and freight companies are passing higher diesel costs to businesses through fuel surcharges. With geopolitical tensions tightening global fuel supply, diesel prices have surged sharply this year.

Additionally, RBA Assistant Governor Sarah Hunter explained some of the issues facing the committee in a podcast released earlier on Tuesday. Sarah Hunter said: “The Middle East conflict and its impact on oil prices — if you’ve filled up your car recently, you may have noticed this.” “The committee is very clear that, even though they have not raised rates, they remain very concerned about inflation. We see inflation risks as clearly skewed to the upside.”