Australia Raises Interest Rates to an 18 Year High as AI Spending and Energy Costs Push Prices Up

The Reserve Bank of Australia raised its benchmark rate by 25 basis points to 4.85% on Tuesday, the highest level in 18 years. The monetary policy board voted 6 to 3, with three members preferring to keep rates at 4.60%. The bank also warned that inflation will stay elevated through much of 2027.

Why Inflation Is Staying High

The board said AI related investment is driving fast price growth for technology goods, while fuel and commodity costs have climbed because of the Middle East conflict. As a result, the bank now expects inflation to return to the top of its 2% to 3% target range only in late 2027, roughly three quarters later than it forecast before.

Government Reaction and the Fed Comparison

Treasurer Jim Chalmers said the move was widely expected but still hard on families and businesses already carrying heavy costs from events outside their control. Australia’s decision stands in contrast to the US Federal Reserve, which held rates last week. Even so, Fed officials have warned that the AI investment boom is also lifting prices, including for computer equipment and utilities.