Australian inflation has surges to 4.3% with consensus amongst economists being that the Reserve Bank of Australia will lift rates to an 18-year high when the board meets next Tuesday.
Figures released by the Australian Bureau of Statistics (ABS) on Wednesday, 28 October, showed the Consumer Price Index (CPI) rose 4.3 per cent in the 12 months to September, up from 4 per cent in August.
The monthly CPI increased 0.8 per cent in September, while the seasonally adjusted measure rose 0.6 per cent. The results highlighted the continuing difficulty of bringing inflation back within the RBA’s target range of 2 to 3 per cent.
The data prompted financial markets to increase their expectations of another interest rate increase at the central bank’s monetary policy meeting on Tuesday, 3 November.
In a note to investors, AMP Capital economist My Bui wrote, “Australia’s August inflation report was marginally hotter than expected – but that’s already enough to lock in a hike from the RBA in next week’s meeting.
“There are a lot of different inflation measures, but the most important figures (aka the monthly and quarterly trimmed mean measures which take out volatile outliers) all accelerated versus prior readings, which will warrant continued hawkishness from the [RBA] Board.”
The RBA has already raised its cash rate four times in 2026, taking it to 4.6 per cent. Another 0.25 percentage point increase would lift the rate to 4.85 per cent, increasing borrowing costs for households and businesses.
Housing and transport drive inflation
Housing remained Australia’s largest contributor to annual inflation, with prices in the category rising 5.2 per cent over the year.
Transport was the second-largest contributor, recording an annual increase of 8.7 per cent as higher fuel prices added to household expenses.
Automotive fuel prices rose 9.4 per cent in September alone, following a 14.8 per cent increase in August. The ABS attributed the increases to higher international oil prices.
The figures underscore the vulnerability of Australian households to rising energy costs, particularly when combined with continuing pressure from housing expenses.
Food and non-alcoholic beverage prices increased 3.2 per cent over the year, while education costs rose 4.7 per cent.
The inflation increase was also geographically widespread. Annual inflation reached 5.3 per cent in Hobart and 5.2 per cent in Darwin, compared with 4.3 per cent in Sydney and 4 per cent in Melbourne.
Underlying inflation remains elevated
Of particular concern to policymakers was the persistence of underlying inflation. The ABS reported annual trimmed mean inflation of 3.6 per cent in September, compared with a revised 3.5 per cent in August.
Trimmed mean inflation excludes unusually large price movements to provide a clearer indication of underlying price pressures. The measure remains above the RBA’s target range.
Quarterly data also showed the trimmed mean increased 1 per cent in the September quarter, while the headline CPI rose 1.3 per cent.
The results suggested inflationary pressures extended beyond temporary fluctuations in fuel prices, complicating the central bank’s efforts to achieve a sustainable return to its target.
Difficult choices for the Reserve Bank
The latest figures leave the RBA facing a difficult balancing act.
Higher interest rates could help restrain consumer spending and demand, reducing the ability of businesses to pass on price increases. However, further tightening would increase mortgage repayments and borrowing costs at a time when many households are already experiencing financial pressure.
There are also concerns about the broader economy, including weaker consumer confidence and signs of softness in the labour market.
Treasurer Jim Chalmers has pointed to international pressures, including higher oil prices, as contributing to Australia’s inflation problems. However, the latest figures will intensify scrutiny of the government’s efforts to ease cost-of-living pressures.
For financial markets, the immediate focus is the RBA’s November decision and its assessment of the inflation outlook.
The September CPI figures have made the fight against inflation more challenging, increasing the likelihood of another rate rise and prolonging uncertainty for Australian households, businesses and investors.
