Insights

Oil prices surged in September as conflict in the Gulf intensified, adding fresh pressure to inflation and interest rates. Share and bond markets felt the impact, while Australian households faced another rate rise and softer housing conditions.

September was a more difficult month for investors, with rising oil prices once again shaping the outlook for inflation, interest rates and financial markets.

Brent crude climbed 14.4% to around US$103.50 a barrel after strikes on tankers and Gulf oil facilities disrupted energy markets. That renewed inflation concerns and pushed government bond yields higher around the world. Most major share markets fell, including Australian shares, which declined 2.4% over the month, although the technology-heavy Nasdaq managed to gain 1.9%.

Interest rates move higher

September also marked a shift from central banks warning about higher rates to actually delivering them.

The Reserve Bank of Australia raised the cash rate by 0.25 percentage points to 4.60%, its fourth increase and the highest level in 15 years. Annual headline inflation had risen to 4.0% in August, driven largely by higher fuel and electricity prices, while underlying inflation remained elevated.     Monthly Market Update - Septemb…

The US Federal Reserve, European Central Bank and Bank of Japan also increased rates during the month. Higher interest rates and inflation expectations weighed particularly heavily on bond markets, with yields rising across Australia, the US and Europe.     Monthly Market Update - Septemb…     Monthly Market Update - Septemb…

Australian households feeling the pressure

Closer to home, the economy continued to grow, but there were signs that households were becoming more cautious.

Australian economic growth was 0.4% in the June quarter and 2.1% over the year. However, household spending lost momentum in August as higher fuel costs pushed up essential spending while discretionary spending declined. Business conditions also weakened as rising wage and fuel costs put pressure on margins.     Monthly Market Update - Septemb…

Housing remained particularly sensitive to higher interest rates. National home values fell 1.1% in September, the sixth consecutive monthly decline, leaving prices 5.2% below their March peak.     Monthly Market Update - Septemb…

A mixed month for investment markets

Australian shares returned -2.42% for September, while Australian bonds declined 0.86%. Listed property also struggled as higher bond yields weighed on valuations.

International markets were more resilient for Australian investors. International shares returned 1.85% and emerging market shares gained 2.43% over the month. A 2.8% fall in the Australian dollar against the US dollar helped boost the Australian-dollar value of unhedged overseas investments.     Monthly Market Update - Septemb…     Monthly Market Update - Septemb…

What happens next?

Oil prices and the conflict in the Middle East remain important risks for markets. Any progress towards reopening the Strait of Hormuz could ease pressure on energy prices, but continued disruption could keep inflation higher for longer.

Central bank decisions will also remain firmly in focus. The RBA is due to meet again in November, while the Federal Reserve has indicated that another rate increase may still come before the end of 2026.     Monthly Market Update - Septemb…

For investors, September was another reminder that short-term market movements can be driven by events that are difficult to predict. Maintaining a diversified portfolio and keeping decisions anchored to long-term goals remains particularly important during periods of heightened uncertainty.

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Read more in our latest monthly market update, available here.