Feb 10, 2026 RDL Financial Planning

What the RBA wants Australians to do next to fight inflation – or risk more rate hikes

The RBA’s latest rate hike to 3.85% came with a pretty clear message: inflation is still too high, and unless Australians change some of their spending habits, more rate rises could follow. For some people—like retirees living off savings—higher rates are a win. But for anyone with a mortgage, especially first‑home buyers who stretched themselves to get into the market, it was a tough blow.

RBA Governor Michele Bullock didn’t sugar‑coat it. She acknowledged the pain but stressed that letting inflation run wild would be even worse. And that’s really the heart of the issue: the RBA is trying to stop high prices from becoming the “new normal.”

What’s going on with prices?

Even though the economy looks fine on paper—low unemployment, rising wages—most people don’t feel that way. Everyday costs have jumped 20–25% over the past few years, and that’s something you notice every time you buy groceries, pay a bill, or visit the doctor.

Inflation is still sitting above the RBA’s comfort zone, with the headline rate at 3.8% and the underlying rate at 3.3%. Three big things are driving it:

• Housing costs are rising fastest—rents, insurance, utilities, and building costs are all up. Ironically, higher interest rates slow down construction, which keeps rental supply tight and pushes rents even higher.
• Durable goods like cars, appliances, and furniture are still in strong demand.
• Market services—things like eating out, haircuts, medical visits, travel—are climbing steadily. These prices tend to be “sticky,” meaning once they rise, they rarely fall. Wage growth in these sectors also feeds into higher prices.

How rate cuts changed behaviour

The RBA cut rates three times in 2025, and even though that wasn’t the intention, people took it as a green light to spend again. And they did—Black Friday spending alone jumped 4.6%. Businesses saw the demand and raised prices. That’s exactly the cycle the RBA is trying to break now.

What the RBA hopes Australians will do

The central bank can’t undo the price rises that have already happened. It can only try to slow future increases. With this rate rise, it’s hoping Australians will:

• Spend less, so businesses feel less pressure to lift prices
• Save more, which cools demand
• Avoid pushing for big wage rises, which can trigger a wage‑price spiral

The RBA knows interest rates are a blunt tool—Bullock even called it “a bit of an art.” But right now, it’s the main lever they have.