Why Everything Feels Expensive: The RBA Chief Economist Breaks It Down
Jan 13, 2026
By Molly Benjamin, Founder of Ladies Finance Club
Listen to the full podcast here.
If you’ve walked out of Coles lately feeling personally attacked by the total, you’re not imagining it. Life does feel more expensive, and in this special episode of Get Rich, I got to sit down with the Reserve Bank of Australia’s Chief Economist (and Assistant Governor), Sarah Hunter, to unpack why.
Honestly, when the RBA reached out asking if I’d like to interview their chief economist about inflation, I had a full “wait… me?” moment. It also reminded me of something I tell our community all the time, keep showing up, keep building, doors open in ways you can’t predict.
Now, this chat is gold because Sarah explains monetary policy, interest rates, and inflation in normal human language. No jargon salad. Just clarity.
First, what even is inflation?
Sarah put it simply, inflation is the percentage increase in prices from one year to the next.
It’s not that every single item rises by the same amount. Some prices go up, some go down, some stay steady, so economists use an average measure called the Consumer Price Index (CPI).
At the time of recording, Sarah explained the most recent quarterly inflation number was 3.2% (September quarter), and they were about to receive the new monthly CPI update that same day.
What’s actually in CPI?
CPI is basically a “basket” of what households spend money on across the year, including:
Rent, groceries, petrol, eating out, clothes, furniture, basically everything.
The Australian Bureau of Statistics looks at what the average household spends in different categories, gives each one a “weight,” then measures how prices have changed.
The key point Sarah made is this, no one person is the average.
So if you’re looking at the headline inflation number and thinking, “That’s not my experience,” you’re probably right. If your rent has jumped more than average, or you drive a lot and petrol is killing you, your personal inflation rate can feel way higher.
Is high inflation good or bad?
We want inflation to be low and stable, and the RBA’s target is 2% to 3%.
Why? Because when inflation is higher than that, it makes life harder for basically everyone.
- Households struggle to budget because prices rise faster than pay rises
- Wages tend to adjust slowly (many people only get a pay review once a year)
- People on government payments can be squeezed because indexation happens periodically
- Businesses find it harder to plan and invest, because price signals get messy
So while inflation coming down is good news, it doesn’t mean everything magically becomes “cheap” again.
If inflation falls, do prices fall too?
This was one of the best explanations in the episode.
If inflation falls, it means prices are rising more slowly, not that prices go back down.
Sarah gave her own example, milk used to be around $1 a litre pre-COVID, now it’s higher, and it’s very unlikely to return to the old price. Same with my emotional support item, the Macca’s cone, it is not 30 cents anymore and I’m still processing that.
The RBA is aiming for smaller price rises, not falling prices, because widespread price falls can be really difficult for an economy to deal with.
How inflation connects to your mortgage and your savings
This is where it gets personal.
Sarah explained the RBA sets the cash rate, and banks usually link mortgage and savings rates to it (often “cash rate + margin”).
When inflation surged after the pandemic, the RBA lifted interest rates to slow things down and bring inflation back under control. That period began in May 2022, with the last rate rise in November 2023.
Higher interest rates tend to:
- increase mortgage repayments (for variable loans)
- increase savings interest rates (banks pay you more to save)
- encourage people to spend less, which eases inflation pressure
She also explained that once inflation started easing and demand and supply began to rebalance, the RBA started cutting rates again, which helps mortgage holders but reduces the interest paid on savings.
Who decides interest rates, the RBA or the banks?
The RBA sets the cash rate.
Banks set your mortgage rate and savings rate, but they typically move in line with the cash rate.
So you don’t need to memorise every RBA decision, but it helps to know that when the cash rate changes, your repayments or savings interest often change too.
What’s a recession, and is it connected?
A recession is commonly defined as two consecutive quarters of negative GDP growth (economic activity shrinking over a six-month period).
Sarah was clear, the RBA is not trying to cause a recession. Recessions usually come from shocks.
She used COVID-19 as the obvious example, when large parts of the economy shut down and GDP fell. In that kind of situation, monetary policy usually moves the other way, to support the economy. Sarah mentioned that in March 2020 the RBA cut rates to emergency-low levels to help cushion the blow and support recovery.
How global events affect inflation in Australia
Even though Australia feels far away, we’re very connected.
Sarah explained global shocks can hit inflation through:
- Import prices, for example oil, which flows into petrol prices
- global recessions, which reduce demand for tourism and exports
- financial markets, like sharemarket volatility that can spill into confidence and spending
She gave the example of the war in Ukraine, and how concerns about supply pushed up global oil prices, which fed into petrol prices here.
And yes, we had to talk about the great Aussie inflation indicator, banana prices. A tropical storm wiped out crops, supply dropped, demand stayed, prices shot up. Classic supply shock.
Do wages rise with inflation?
Over the medium to long term, wages usually catch up with inflation, but they don’t always keep up straight away.
Sarah explained why it can lag, many pay rises are set annually, and some enterprise agreements set wage increases for two to three years in advance.
A good benchmark mindset shift is this, if your pay rise is 2.5% and inflation is 2.5%, you’ve basically just kept up. Your purchasing power hasn’t really increased.
The encouraging bit Sarah shared is that more recently, wages have started growing faster than prices, which suggests some catch-up after a rough period.
What does the Reserve Bank actually do?
Sarah broke the RBA’s responsibilities into three big buckets:
- Monetary policy, setting the cash rate to keep inflation between 2% and 3%, supporting an economy that stays close to full employment
- Financial stability, stepping in during crisis-style periods when markets seize up
- Payments system, the behind-the-scenes rails that make “tap and pay” work when you buy coffee
Also yes, the RBA talks to other central banks around the world, like the US Federal Reserve and the Bank of England, especially when shocks are global.
Why is the inflation target 2% to 3%?
Because we want inflation low, but still positive.
Zero or negative inflation (falling prices) can create its own problems over time, including downward pressure on wages, and a very unfamiliar economic environment.
Australia’s 2% to 3% target was agreed between the RBA and the government in the 1990s, and it’s stayed in place since.
The outlook for 2026
Sarah’s outlook was steady and practical.
She expects inflation to remain a bit above the target band for a while, partly due to temporary factors unwinding, like electricity rebates ending in some states, and the federal rebate currently legislated to end around the end of the year.
Over time, the expectation is inflation gradually moves down again, toward the mid-2s later on.
Her practical tip for households was simple: be aware of the changes that will push costs up, especially electricity, so you’re not blindsided.
And yes, I had to slip in, if you’re worried about power bills, go listen to our episode on solar.
Need financial advice? Check out a range of our experts who can help you!
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