Why the real inflation shock may still be ahead

Australia’s battle against inflation may be entering a more difficult phase, with economists warning that rising global energy costs and imported price pressures could keep inflation elevated even as domestic demand begins to slow.

The Reserve Bank this week delivered its third interest rate hike of 2026, continuing an aggressive tightening cycle aimed at preventing inflation from becoming entrenched across the economy. 

While markets had widely expected the move, attention quickly shifted to whether the central bank’s forecasts, including expectations that inflation will peak in June, may prove too optimistic.

Speaking on the Savings Tip Jar podcast after the RBA decision, Credit Union SA Chair of Economics at Adelaide University, Dr Susan Stone, pointed to uncertainty around global energy markets and the timing of cost pressures feeding through the economy.

“They expect inflation to peak in June, which is interesting because if the war continues, and that feeds into costs, we would expect to see prices continue to rise well past June,” Dr Stone said.

Stone said the RBA’s outlook may also reflect a deliberate attempt to allow earlier policy tightening to take effect, given the lag between interest rate changes and their impact on inflation.

“I’m wondering if they’re going to give an opportunity for these three rate hikes to work their way through because we know there’s a lag in policy, so it could be that they're signalling a willingness to kind of wait and see, get this one in, so to speak.”

Inflation steering the policy path

Governor Michelle Bullock has repeatedly emphasised the danger of inflation expectations becoming “embedded” in decision-making, a concern Dr Stone said is driving the RBA’s willingness to act even ahead of the federal budget.

Dr Stone said the central bank’s willingness to raise rates so close to the federal budget underscored how seriously it views the inflation threat.

“Traditionally, they don’t make a change right before the federal budget, but I think [Bullock] had noted that the fear of inflation becoming embedded, as we say, was greater than a fear of recession or another downturn happening,” she said.

Lagging impact

Beyond the near-term policy debate, Dr Stone warned that the inflation cycle may be shifting rather than easing. 

While domestic inflation has shown signs of stabilising, she said global price pressures, particularly in energy, are only beginning to flow through.

“Even if we get the domestic inflation under control, you're not going to be able to avoid that cost push coming through. I don't see a way around that. And I don't see a way around us not having maybe another rate hike coming just to have to deal with that.”

That concern is reinforced by expectations that oil prices will remain elevated in the months ahead, limiting any relief on transport and production costs.

Goldman Sachs recently projected that oil prices are likely to stay above $90 USD a barrel through at least the end of the year, underscoring expectations of sustained energy cost pressure.

Dr Stone said that momentum means the effects of earlier price shocks are still working their way through supply chains, suggesting inflation could remain sticky even as headline readings fluctuate.

The RBA’s recent forecasts that inflation could peak around June have also drawn scrutiny from analysts, particularly given uncertainty around global conflict dynamics and energy supply. 

The combination of delayed cost transmission, persistent energy pressures, and already-delivered rate hikes leaves open the possibility that further tightening may still be required.