Strong inflation sets course for RBA to hike next week

The Australian Bureau of Statistics (ABS) published Consumer Price Index (CPI) data for September 2026, showing headline inflation rose by 4.3% annually, an uptick from 4.0% in August. Housing costs pushed inflation up by 5.2%, while transport inflation surged 8.7% due to rising fuel prices. The policy-relevant trimmed mean inflation stood at 3.6% for September, a slight increase from 3.5% in August.

Using pre-October 2025 methodology, quarterly trimmed mean inflation was 1.0%, with annual trimmed mean inflation reaching 3.7%, continuing its upward trend. The Reserve Bank of Australia (RBA) governor, Michele Bullock, expressed a hawkish stance on inflation and interest rates during her Senate Economics Legislation Committee appearance.

Bullock attributed the inflation spike to the Middle East conflict and higher energy costs, stating that inflation is now outpacing the RBA's August projections due to materialized upside risks. She highlighted that domestic demand is driving some of the inflation, not just imports. Bullock also noted the labor market is tighter than initially assessed, even though unemployment has risen higher than expected.

Furthermore, weak productivity growth means sustained subdued demand growth is required to bring inflation back to target sustainably. Looking ahead, the RBA Board will evaluate the data and risks next week, with a primary question being whether current tightening measures will be sufficient to return inflation to target in a reasonable timeframe.

Given the current inflation trends, the likelihood is that the RBA will raise interest rates again at their next meeting on Tuesday.