One good GDP number is no case for a September rate rise

By Vikram Singh · 2026-09-02

Opinion

Bond markets moved fast on Wednesday. The Australian 10-year government bond yield reached 5.19 per cent, its highest level since July 2011, after the ABS confirmed GDP rose 0.4 per cent in the June quarter.^[1] Rate-hike talk got louder almost immediately. It shouldn't have.

A headline beat is not the same as broad inflationary pressure. The composition of this result matters more than the number, and the composition was patchy.

The headline beat landed above forecast, but was narrow

The Australian National Accounts: National Income, Expenditure and Product, June 2026, released 2 September, showed the economy grew 2.1 per cent over the year to June.^[2] The RBA's August 2026 Statement on Monetary Policy had forecast 1.9 per cent for that same period.^[3] The economy outperformed the Bank's own projection. Worth noting.

Grace Kim, Head of National Accounts at the ABS, said: "Economic growth remained subdued in the June quarter as households continued to behave cautiously. While increased spending and business investment occurred in pockets of the economy, imports supported much of the growth, moderating its contribution to overall GDP growth."^[4] Subdued. Cautious. Pockets. That is not the language of an overheating economy.

Profits tell a two-speed story

Business Indicators, Australia, June 2026, released 31 August, showed company gross operating profits rose 1.8 per cent for the quarter.^[5] That sounds solid until you disaggregate it.

Mining profits rose 6.8 per cent while non-mining profits fell 1.1 per cent, according to Westpac Senior Economist Pat Bustamante's analysis of the June quarter data, published 31 August.^[6] The broader profit gain was also flattered by an inventory valuation adjustment of $3.7 billion, up from $2.4 billion in the March quarter. Strip that accounting effect out and the profits story looks considerably thinner.

Inventories fell 0.2 per cent over the same period.^[5] Businesses were drawing down stocks, not rebuilding them in anticipation of stronger demand. That is not behaviour you see at the front end of an inflationary surge.

Mining had a strong quarter. The rest of the productive economy did not follow. Raising rates into a non-mining profit downturn would tighten conditions on the part of the economy already losing momentum.

September should be judged on what drove growth

The hawkish case deserves a fair hearing. The RBA's mandate is inflation control. Services inflation remains elevated. Labour costs are sticky. The RBA's August 2026 Statement on Monetary Policy said that inflation is likely to remain high for some time and there are upside risks.^[3] Markets have repriced toward tighter policy, and some argue the Bank risks falling behind the curve if it waits for perfect breadth in the data.

That argument is serious. It is also not answered by this GDP print alone.

Governor Michele Bullock said in June: "I want to be very clear that inflation remains too high. Leaving rates on hold today will allow the Board to assess how these previous increases are flowing through the economy."^[7] The Board was already watching for pass-through evidence. One quarter of mining-led growth above a forecast does not supply that evidence.

Broad demand driving prices higher is what tightening logic requires. A $3.7 billion valuation adjustment and a 6.8 per cent mining rebound do not show that. A 1.1 per cent fall in non-mining profits and cautious household behaviour cut against it.

This print does not rule out a hike at the 28 to 29 September Board meeting. The Board should judge September on whether growth was broad enough and demand-driven enough to justify more tightening, not on whether one quarterly figure cleared a forecast by two-tenths of a percentage point.

Vikram Singh

Vikram Singh writes about banking. He follows where money actually moves, from the strategy set in head office to what changes on a customer's phone.