> ## Content Index > Fetch the complete content index at: https://www.benchmarkanalytics.com.au/llms.txt > Use this file to discover other available public pages before exploring further. # Businesses Are Losing Confidence in the RBA’s Inflation Target — Why This Is Dangerous - URL: https://www.benchmarkanalytics.com.au/businesses-are-losing-confidence-in-the-rbas-inflation-target-why-this-is-dangerous/ - Published: 2026-11-11T20:00:00.000Z - Updated: 2026-11-11T19:59:59.000Z - Description: New research reveals Australian businesses are becoming less confident that the RBA will achieve its inflation target. Why this could undermine monetary policy and make future interest rate increases more painful. - Author: Nick Hossack - Tags: RBA, Monetary Policy, Australian Economy, Interest Rates Australia’s inflation-targeting system faces a danger more serious than another uncomfortable CPI release: some businesses are becoming less confident that the Reserve Bank will deliver its 2–3 per cent inflation target. In a 5 November speech, Deputy Governor Andrew Hauser cited Macquarie University’s Business Outlook Scenario Survey (BOSS). Since 2025, the proportion of firms uncertain whether inflation will be within target over the next five to ten years has increased. The RBA’s business liaison program reports similar concerns. This is not yet proof that expectations have become unanchored; most market-based long-term measures remain consistent with the target. But it is an unmistakable warning. Importantly, these concerns relate to the target’s credibility years ahead, not simply next month’s CPI release alone. The warning comes against disappointing inflation outcomes. In the September quarter headline inflation was 3.9 per cent and trimmed mean inflation 3.7 per cent. The RBA raised the cash rate to 4.85 per cent on 3 November and now expects underlying inflation above 3 per cent until late 2027, returning to 2.5 per cent around mid-2028. **Why should confidence matter?** Inflation is partly determined by decisions made before tomorrow arrives. Firms set prices, negotiate contracts and plan wages on expectations of future costs. Workers seek pay increases based on expected purchasing-power losses. When everyone believes the RBA will restore 2–3 per cent inflation, they have less reason to embed persistent price increases in contracts. But if businesses begin assuming inflation will remain high, they may increase prices earlier, more frequently and by more. Workers seek compensation. Costs rise, validating the original expectations. A temporary fuel shock can become a sustained domestic inflation problem. There is Australian evidence for this mechanism. The BOSS survey found firms expecting a quicker return to target planned to pass through less of their Middle East-related cost increases. By September, surveyed firms were planning to pass through a greater share of future cost increases than they had envisaged in April. **This strikes at monetary policy’s efficiency.** Hauser showed that when the public believes the RBA’s response, the same interest-rate path reduces inflation sooner. Without that trust, more aggressive tightening and greater losses in economic output may be required. The qualification is important: financial-market expectations remain broadly anchored and the median economist forecasts 2.6 per cent inflation over the next five to ten years. Overall public trust in the RBA remains relatively stable, despite falling confidence in its near-term performance. For policymakers, the priority is therefore not only to reduce today's inflation. It is to restore confidence that the target will be achieved. **The credibility of the RBA is itself an instrument of monetary policy. Lose it, and every future inflation shock becomes harder—and more costly—to manage.** BENCHMARK ANALYTICS | MONETARY POLICY ## Australia's Inflation Anchor Is Under Pressure Why falling confidence in the inflation target could make interest rate policy more painful. | 2–3% RBA inflation target | 3.7% Underlying inflation Sep quarter 2026 | 4.85% RBA cash rate November 2026 | | ------------------------- | ------------------------------------------ | --------------------------------- | ### What the new evidence reveals Business confidence in the target is slipping The BOSS survey shows firms becoming less certain that inflation will return to 2–3% over the next 5–10 years. The RBA's business liaison findings reinforce this concern. The broader inflation anchor still holds Most longer-term market measures remain consistent with the target. The median economist expects 2.6% inflation over the next 5–10 years. ### How inflation expectations become reality **1\. Confidence weakens** Businesses expect inflation to remain elevated ↓ **2\. Pricing and wage decisions change** Firms pass through more costs; workers seek higher nominal wages ↓ **3\. Inflation becomes more persistent** Expectations risk becoming self-fulfilling ↓ **4\. Monetary policy becomes more costly** Potentially higher interest rates, weaker growth and more unemployment The credibility dividend When businesses trust the RBA to deliver its inflation target, less economic restraint may be needed to bring inflation under control. Expectations are not just forecasts. They help determine economic outcomes. Source: RBA Statement on Monetary Policy, November 2026; Andrew Hauser, "Trust, Expectations and Monetary Policy", 5 November 2026\. Diagram illustrates a potential feedback mechanism, not an established wage-price spiral.