Australia’s inflation story is facing a new test as energy prices rise again. Higher oil prices are already feeding into petrol costs, while businesses are also facing more expensive transport and other inputs.
The Reserve Bank of Australia (RBA) has warned that these pressures could make inflation more persistent. With the next RBA meeting scheduled for September 28–29, energy prices are one of the issues being watched closely.
For households, the impact can go well beyond the price shown at the petrol pump. More expensive energy can eventually affect groceries, transport, services and other everyday expenses.
Why the RBA is watching energy prices again
The RBA has been concerned about inflation remaining above its 2–3 per cent target range. In its August forecasts, the central bank said inflation risks were tilted to the upside and highlighted the possibility that higher global energy costs could pass through to Australian prices.
That concern has become more important in September. In a speech on September 18, RBA Governor Michele Bullock said oil and related prices had increased sharply again and would add directly to inflation. She also said the bank was concerned about higher costs becoming embedded in local price and wage-setting decisions.
The RBA cannot control the international price of oil. But it can try to prevent a temporary energy shock from creating broader domestic inflation.
This is why energy prices matter so much for monetary policy.
Petrol is likely to be the first place households notice
The most visible effect for many Australians is the cost of filling a car.
Australian Bureau of Statistics data showed automotive fuel prices jumped 7.5 per cent in July 2026 compared with the previous month. The ABS said the increase was linked to higher world oil prices and the partial unwinding of federal fuel excise relief.
The RBA has previously estimated that a 10 per cent increase in domestic fuel prices can add a little more than 0.3 percentage points to headline inflation over one to two quarters. Fuel is also particularly noticeable to households because it is purchased frequently and prices are highly visible.
That means another sustained rise in oil prices could quickly show up in household budgets.
For people who drive long distances for work, live in regional areas or depend heavily on a car, the effect can be particularly significant.
Higher energy costs can spread through the economy
The bigger concern for the RBA is not only petrol.
Businesses use fuel and energy to move goods, run machinery, provide services and operate buildings. If their costs rise for a prolonged period, some businesses may pass part of those increases on to customers.
That can create a wider inflation effect.
The RBA has said higher fuel prices can eventually push up the cost of other goods and services as businesses respond to higher input costs. The bank has also warned that inflation expectations can become important if households and businesses start expecting prices to keep rising.
This does not mean every increase in oil prices will automatically lead to higher prices everywhere. The size and speed of the effect depend on how long the energy shock lasts, how businesses respond and how strong demand remains.
Recent Australian data already show that some household costs remain elevated. The CPI rose 3.5 per cent over the year to July 2026, while trimmed mean inflation remained at 3.6 per cent. Housing costs rose 5.0 per cent over the same period, with electricity prices up 6.1 per cent over the year.
What this could mean for household budgets
If energy prices remain high, Australian households could feel pressure in several areas.
- Petrol and diesel could take a larger share of weekly budgets, particularly for households that rely heavily on cars.
- Transport and delivery costs could rise as businesses face higher fuel expenses.
- Some food and household goods could become more expensive if higher transport and production costs are passed through.
- Household spending power could weaken if prices rise faster than incomes.
The effect will not be the same for everyone. The RBA has noted that lower-income households can be more exposed to higher fuel costs because petrol represents a larger share of their spending. Regional and rural households can also face greater pressure because longer driving distances and fewer public transport options can make fuel harder to avoid.
Could higher energy prices lead to higher interest rates?
This is where the situation becomes more complicated.
The RBA cannot reduce the global price of oil by raising Australian interest rates. RBA Assistant Governor Sarah Hunter has explicitly explained that global oil prices are an external factor the central bank cannot control.
What the RBA can do is try to prevent the initial energy shock from turning into broader domestic inflation. If businesses begin raising prices more widely, workers seek larger wage increases and households start expecting faster inflation, the original energy shock can become more persistent.
That is one reason the RBA is paying close attention to the latest energy developments.
The bank’s August forecast already expected conflict-related energy costs to put upward pressure on inflation for a period. It said these effects could continue until around the middle of 2027 before gradually fading, assuming energy markets and the broader situation improve.
What happens next for Australian households
The immediate question is how long the energy-price increase lasts.
If global oil prices settle and supply conditions improve, the pressure on Australian inflation could eventually fade. But if energy prices remain high for longer, businesses may have more time to pass higher costs through to consumers.
The RBA is therefore watching more than just the headline petrol price. It is also looking at whether higher energy costs are spreading into other prices and whether inflation expectations are changing.
Australia’s latest inflation figures show that price pressures remain above the RBA’s target, even though headline inflation eased from 3.8 per cent in June to 3.5 per cent in July. Trimmed mean inflation remained at 3.6 per cent, showing that underlying price pressures have not disappeared.
For households, the practical message is simple: another period of higher energy prices could make the cost-of-living squeeze more noticeable, especially for motorists and families with limited room in their budgets.
The RBA’s challenge is to make sure that a global energy shock does not become a longer-lasting domestic inflation problem. How energy prices develop over the coming months will be an important part of that equation.