Inflation runs hotter than expected a week out from RBA rate decision

Marina Karpathios
03:15pm October 28 2026

RBA Governor Michele Bullock said while the central bank's August forecasts saw inflation returning to the 2-3 per cent target in late 2027, subsequent global and domestic developments have dampened that earlier base case. (Image: Commuters at Sydney's Circular Quay station, via Unsplash)

Australian inflation has risen a little hotter than forecast by markets, keeping pressure on household budgets and putting next week’s Reserve Bank interest rate decision in focus. 

The September data showed inflation accelerated to 4.3 per cent annually, from 4.0 per cent in August, as prices rose 0.8 per cent during the month.  

Underlying inflation remained elevated, too. The trimmed mean - a measure the RBA watches closely because it strips out some of the largest price movements - rose 1.0 per cent over the quarter and 3.6 per cent over the year.


What does it mean for interest rates?

The figures come less than a week before the RBA's monetary board meets on Tuesday, Melbourne Cup Day, to make its next cash rate decision. 

The initial assessment from Australia's central bank was blunt. 

“These numbers are too high,” RBA Deputy Governor Andrew Hauser told a parliamentary hearing this morning, where officials were appearing when the ABS released the CPI figures. 

Westpac Chief Economist Luci Ellis reaffirmed her expectation that the RBA will lift the cash rate again next week. 

Some of the risks the RBA had been watching have since materialised, particularly higher energy prices. Ellis said the central bank was especially concerned that above-target inflation could “become embedded in people’s expectations and pricing decisions”. 

Westpac therefore expects a majority of RBA board members to support an increase, although some could dissent. 

Just minutes prior to the release of the data, RBA Governor Michele Bullock pre-emptively warned senators that inflation was likely to remain elevated as domestic pressures combined with rising global costs. 

“The increase in inflation reflects both persistent capacity pressures in the Australian economy and global cost pressures associated with the conflict in the Middle East,” Bullock said. 

“Because of both these factors, inflation is likely to remain elevated for some time.” 

The RBA aims to bring inflation to its ideal midpoint of the 2-3 per cent target band. Bullock said the central bank's August forecasts saw inflation returning there in late 2027, but subsequent developments have dampened that earlier base case.  

While the Middle East conflict and the resulting higher global energy costs are part of the problem, the RBA reiterated that inflation pressures are also being generated at home.  

The governor referred to underlying inflation as evidence of domestic capacity pressures, even after volatile price movements such as fuel are stripped out. 

So what's pushing up prices? 

The headline CPI tells us prices overall are higher, but the ABS breakdown shows some parts of household budgets are rising much faster than others. 
 

  • Transport: up 3.0 per cent in September and 8.7 per cent over the year 
  • Housing: up 5.2 per cent over the year 
  • Recreation and culture: up 3.8 per cent in September and 4.5 per cent annually  
  • Food and non-alcoholic drinks: flat in September, but still 3.2 per cent more expensive than a year ago 


What does it mean for everyday Australians?  

For consumers, inflation remaining stubbornly above target creates a double-whammy, where everyday expenses are rising just as higher interest rates are increasing borrowing costs. 

While many Australians are already feeling the pain in their pocket, the effects of prior rate rises are also still loading, working their way through the economy. 

“Because monetary policy works with a lag, the full effects of recent rate increases are yet to be felt on domestic activity,” Bullock said. 

The housing market is already showing some bruises. Bullock told senators that home prices had fallen in most capital cities and new housing loans had declined, although Australian home prices remain around 50 per cent higher than in early 2020. 

While many households face budget pressure, the RBA governor noted only a small share of borrowers were in negative equity or facing severe repayment difficulty. 

Whether mortgage holders share that sentiment remains a separate question. For now, all eyes remain fixed on Tuesday's monetary board decision. 

Don't miss

Related articles

'Dire': New data shows consumer confidence sinks to one of its weakest recorded levels

By Marina Karpathios
Westpac Wire

Aussies have tightened their belts, so why did rates go up again?

By Marina Karpathios
Westpac Wire

Westpac brings forward rate hike call to September

By Marina Karpathios
Westpac Wire

Browse topics