The Reserve Bank of Australia (RBA) has lifted the cash rate to 4.35 per cent, marking its third straight increase. Although the rise was widely expected, it won’t make repayments, payroll or planning any easier for businesses this quarter.

The Bank says inflation “picked up materially” in late 2025 and it hasn’t eased as quickly as hoped, forcing their hand. Higher fuel costs tied to conflict in the Middle East have added increasing pressure, and there are signs those costs are starting to flow through to everyday goods and services.

Governor Michelle Bullock acknowledged the rate rise will impact many Australians already doing it tough, she suggested the move was ineveitable if the bank is to have a chance of curtailing inflation.

“I understand this is a really difficult time for households… but we must get on top of inflation now so that it doesn’t get away from us,” Bullock said.

Fuel one of many issues

While petrol prices are getting most of the headlines, the RBA is concerned there are other pressures in play. The board points to businesses facing higher costs preparing to lift their own prices, as sure signs of trouble ahead. On top of that, short-term inflation expectations have  increased, which means every day Aussies are already assuming that prices will rise.

The rate hike can’t be blamed on global events alone, says Dr Isaac Gross from  the Department of Economics at  Monash Business School.

“While higher petrol prices have pushed inflation up, they are not the primary driver… Instead, the key factors are persistently strong underlying inflation – evident even before the Iran-related oil shock – and a very tight labour market,” Gross says.

His colleague Professor Robert Brooks suggests today’s rate rise was almost a forgone conclusion, and Australians should expect more to come.

“… A further rate increase is seen as needed to reduce inflationary pressures beyond the impacts on discretionary spending and consumer confidence,” Brooks says. The implication is that even if petrol prices settle, inflation might not decline.

Hiring puts the brakes on

The impact of inflation, rate rises and economic pressures is already showing up in the hiring decisions of small business owners.

James Keene  Managing Director APAC at Employment Hero says this latest rate rise will reinforce what many businesses have already started doing:

“Today’s rate hike will push Australian businesses further into a defensive footing.

“Our data is already seeing SMEs pull back on hiring and delay investment, as borrowing costs rise and consumer demand softens,” Keene says.

Hiring hasn’t fallen off a cliff, but it has changed shape. Casual roles have surged while businesses pump the brakes on full-time commitments. Meanwhile, wage growth has stalled for several months.

“Businesses are actively avoiding long-term workforce commitments in an uncertain environment.” Keane says.

Shift work impacted

That cautious approach is also playing out in how businesses manage shifts and hours.

Emma Seymour CFO at Deputy says many operators have moved away from planning rosters around growth and demand, and are instead focused squarely on controlling costs:

“Instead of building schedules around demand forecasts, many are now purely controlling costs.”

The effect is significant. Total hours and shifts have already fallen by between six and eight per cent in early 2026, and that’s making income far less predictable for shift workers. Seymour says many are responding by cobbling together multiple roles just to maintain a steady income, adding:

“The biggest risk isn’t necessarily unemployment, but fragmentation of work,” she says.

Retailers squeezed

Retailers, as usual, are right in the thick of it. The Australian Retail Council says this latest rate rise is likely to weigh further on consumer spending, particularly for non-essential items, as households juggle higher mortgage costs alongside rising fuel and living expenses.

ARC chief economist Glenn Fahey said:

“With household budgets under strain… [this] is expected to reduce spending, especially on non-essential items.”

At the same time, retailers are dealing with rising costs across freight, logistics and energy, with many reporting worsening supply chain conditions and growing concern about the months ahead.

“Margins are under pressure from both sides,” Fahey says.

Retailers are in a tough spot: absorbing higher costs risks profits, passing them on risks losing customers.

Global uncertainty

Anyone hoping for a quick fix to economic conditions will be disappointed. If the conflict in the Middle East drags on, the RBA warns energy prices could climb further, pushing inflation higher in the near term and potentially embedding it more deeply over time.

At the same time, prolonged economic uncertainty could drag on growth, both in Australia and among its major trading partners … So where does this leave small business?

It looks like borrowing costs will be higher and may stay that way for a while. Customers are also becoming increasingly selective with their spending. Costs across key areas are still rising, and workforce decisions are getting trickier as flexibility starts to outweigh stability.

The RBA has shown it’s prepared to move again if needed, with Bullock suggesting inflation is likely to stay above target “for some time”.

Which means for now, businesses need to keep a keen eye on cash flow and make careful calls on any future spending.

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