For most of the past year, the conversation around interest rates has been about when the first cut would land. That conversation has shifted. The latest inflation figures have caught the market off guard, and for the first time in a while the more realistic question is not when rates will fall but whether they might rise again before the year is out. For business owners and finance chiefs who have been holding off on decisions in the hope of cheaper money, that is a meaningful change of backdrop, and it is worth thinking through what it means in practical terms.
The inflation surprise that changed the mood
The July inflation reading came in hot. Underlying inflation, measured by the trimmed mean, rose 0.5% for the month against expectations of just 0.3% (ABS, July 2026). That might sound like a small miss, but in the context of monthly data it is significant, because it matches the highest monthly reading in the history of the series. The headline figure was even punchier, up 1.0% over the month.
What made the result more concerning than a single number suggests was how broad the price increases were. Around 40% of the consumer price basket recorded monthly increases above 0.5%, the widest spread in more than two years (ABS, July 2026). This was not one or two volatile categories dragging the average up. Prices rose across restaurant meals, household textiles and appliances, with dining out posting its largest monthly increase on record.
Read that pattern closely and it tells a story that should resonate with anyone who runs a business. Many firms appear to have used the start of the new financial year to rebuild margins that were squeezed through the first half of 2026. After a long stretch of absorbing higher costs, businesses pushed prices through in July. That is a rational response to margin pressure, but when enough firms do it at once, it keeps inflation sticky and puts the central bank back on alert.
A live September meeting
Before this data, the market had all but ruled out another rate rise. Now the picture is different. Quarterly inflation for the third quarter is shaping up to land between 1.0% and 1.1%, comfortably above where the Reserve Bank expected it to be, and roughly 20 basis points above the projection in its August statement. The Bank had said it would consider tightening further if upside risks to inflation materialised. On this reading, they have.
Market pricing has moved quickly. The odds of a rate rise at the September meeting have climbed to around one in three, with roughly 22 basis points of tightening now priced in by the end of the year. Our working assumption is that the cash rate could rise by 25 basis points in September and again later in the year, which would take it to 4.85% by the close of 2026 from 4.35% today.
None of this is locked in. The Bank has made no secret of its preference for the quarterly inflation figures over the monthly series, which are newer and can be noisier. There is a reasonable chance it waits for the full quarterly release before acting, which would push any move to November. There are also some genuine complications in the data. Fuel prices, which make up around 3% of the basket, are expected to have jumped sharply in July and August and will add noise to the monthly headline figures, even though the quarterly effect may wash out closer to zero. And the July unemployment reading, which rose to 4.5%, was affected by changes to the way the survey is run, making it harder than usual to read the underlying trend (ABS, July 2026).
So the honest position is this. The direction of travel has shifted towards a possible rise, the September meeting is genuinely live, and the case for sitting on your hands and waiting for cheaper credit has weakened considerably.
What this means if you carry debt
The most immediate implication is for businesses carrying variable-rate debt. If you have an overdraft, a variable business loan or equipment finance on a floating rate, another 25 or 50 basis points is a real cost, and it comes on top of a rate environment that is already higher than many owners had planned for. Now is a sensible moment to run the numbers on what a further increase would do to your repayments and your covenants, rather than being caught out by it.
For some businesses, fixing part of the debt makes sense as insurance against further rises. For others, the flexibility of a variable rate is worth keeping, particularly if you expect to repay early or your cash flow is lumpy. There is no single right answer, and the best structure depends on your specific circumstances, but the decision is more pressing now than it was a few months ago. A split facility, where part of the balance is fixed and part remains variable, is often a practical middle ground that we help clients weigh up.
Refinancing and the value of shopping around
A higher-for-longer rate environment does not mean there is nothing to be done. Lenders are not all moving in the same direction at the same pace, and the gap between what one lender will offer and another can be substantial, particularly outside the major banks. Non-bank and specialist lenders have continued to compete hard for good quality business, and in many cases they will look at a deal the majors have declined, or price it more keenly.
If you have not reviewed your facilities in the past year or two, it is worth doing so now, before any further move. Refinancing is not only about the headline rate. It is also about the structure, the fees, the security the lender requires and the covenants attached. A facility that suited your business two years ago may be poorly matched to where you are today, and a review often surfaces savings or flexibility that owners did not realise were available.
Timing expansion and capital investment
For those weighing up expansion, a new site, or a significant equipment purchase, the shift in the rate outlook changes the calculation. The temptation to delay in the hope of cheaper borrowing has been common, but if rates are as likely to rise as fall in the near term, waiting carries its own cost. That does not mean rushing into a poorly timed investment. It means the financing cost of a good opportunity is unlikely to get materially cheaper soon, so the decision should rest on the strength of the opportunity itself rather than a bet on falling rates.
Asset finance in particular is worth a look while you are planning. Locking in the cost of a vehicle, a piece of plant or a fit-out at a fixed rate can bring certainty to your budgeting, and it preserves your working capital and existing facilities for the day-to-day running of the business.
Working capital and the margin question
The inflation data also carries a quieter message about margins. If your suppliers are pushing prices through, as the July figures suggest many are, your input costs are likely still climbing even as headline inflation looks like it is easing on an annual basis. That squeeze can show up in your working capital before it shows up anywhere else. A stretched payables cycle, slower stock turn or a lumpy receivables book can all quietly increase the amount of funding your business needs just to keep running.
This is a good time to make sure your working capital facilities are sized correctly and priced fairly. Wage growth of 3.2% for the year is broadly in line with expectations (ABS, 2026), but combined with rising input costs it keeps pressure on the cost base, and the businesses that manage this best tend to be the ones that plan their funding ahead of need rather than scrambling when a gap appears.
Where we land
The big picture is that the easy narrative of falling rates has been complicated by an inflation reading that surprised almost everyone. Whether the Reserve Bank moves in September or waits, the risk has tilted towards higher rates rather than lower, and business owners are better served planning for that than hoping it away. The practical steps are the same ones that make sense in any uncertain environment. Understand your exposure to rate movements, structure your debt deliberately, review facilities you have not looked at in a while, and make investment decisions on their merits rather than on a rate forecast.
If you would like a second set of eyes on your current facilities, or you are weighing up a decision and want to understand your options across bank and non-bank lenders, we are always happy to talk it through. A short conversation now can save a lot of second-guessing later.
Disclaimer: This article is general information only and does not take into account your objectives, financial situation or needs. It is not personal financial, tax or credit advice. You should consider your own circumstances and seek professional advice before acting on any information contained here.
