Australia’s September Consumer Price Index (CPI) release has increased pressure on the RBA to tighten monetary policy further at their November meeting. Underlying inflation accelerated beyond market expectations and the RBA’s August forecast, while persistent services and housing inflation point to continued domestic price pressures. The result, alongside increasingly hawkish commentary from senior RBA officials, has materially strengthened market expectations of another rate increase in November, despite evidence that economic growth is slowing and labour market conditions are easing.
Annual headline inflation rose to 4.3% from 4.0% in August, driven partly by a 9.4% increase in petrol prices amid the ongoing Middle East conflict. More significantly, trimmed mean inflation, the RBA’s preferred measure of underlying inflation, increased to 3.7% in the September quarter from 3.6% in June. Services inflation also accelerated to 4.1%, whilst rents and cost of new dwellings were other notable contributors. The persistence of services and housing pressures indicates that inflationary risks extend beyond the immediate effects of higher energy costs. Rising transport and input costs also create the risk of indirect price increases as businesses pass on higher expenses, potentially prolonging the disinflation process even as household spending and economic growth moderate.
The result has shifted the balance of risks towards another rate increase at the RBA’s November meeting. Governor Michele Bullock acknowledged that inflation was running above forecast, following Deputy Governor Andrew Hauser comments last week that noted that the inflation outlook had materially deteriorated despite easing labour market conditions and subdued consumption growth. Money markets subsequently increased the implied probability of a 25-basis-point increase to 4.85% at the 3 November meeting towards 90% and are fully priced for a hike by Christmas.
The RBA faces a difficult trade-off between containing persistent inflation and avoiding an excessive deterioration in economic activity and employment. However, the risk that above-target inflation becomes entrenched is likely to keep the Board focused on price stability in the near term. Overall, the September CPI result strengthens the case for further tightening in November, while the outlook beyond that meeting will depend on whether underlying inflation moderates or remains persistently elevated into 2027.
Source: Australian Bureau of Statistics, Consumer Price Index, Australia, October 2026.
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