Australia’s inflation reaches 4.0% as oil price gains threaten to feed into prices
Key Facts
Sarah Hunter, assistant governor for economics at the Reserve Bank of Australia, said rising oil prices were beginning to feed into other prices and some supply chains, as annual inflation reached 4.0% through August. The bank published Hunter’s interview with 60 Minutes on October 25, after it was recorded on October 21. She said oil prices had risen substantially in the preceding weeks and that the impact was beginning to show in the data. She added that increases in fuel and diesel prices were gradually filtering through to other costs. Her comments put the external energy shock alongside domestic demand pressures the bank is seeking to contain.
Hunter cited home renovation costs, saying the cost of work carried out by contractors had risen as the impact of fuel fed through to construction and renovation materials. She said what began with oil, petrol and diesel prices was not confined to fuel stations but was also appearing in other prices. More of the impact would take time to pass through the system and supply chains, she said. That means the shock’s transmission extends beyond the direct reading of energy prices, as she described in the interview. Hunter did not specify exactly when the impact would ease.
On domestic demand, Hunter said demand in Australia was slightly above what the economy could sustainably supply. The bank was working to address that imbalance and limit the risk that imported inflation becomes entrenched in domestic prices, she added. The bank’s board approved four interest rate increases during 2026, according to Hunter, but monetary tightening takes time to work through the economy and reduce inflation. The bank raised its cash rate to 4.60% in September, its highest level in 15 years, according to an S&P Global analysis. That was the fourth increase of the year, the analysis said.
Australian Bureau of Statistics data show the consumer price index rose 4.0% in the 12 months through August, compared with a 3.5% increase through July. Trimmed mean inflation was 3.6% over the same period, unchanged from July. On a monthly basis, the index rose 0.4% in original terms and 0.7% on a seasonally adjusted basis in August. Separately, the S&P Global composite index stood at 51.3 in September, a three-month low, as private sector activity continued to expand at a modest pace. Manufacturing output contracted at its fastest pace in 21 months, while services activity continued to grow more slowly.
An S&P Global analysis said input cost and output price inflation rose again in September, driven mainly by an acceleration in services price inflation, while manufacturing price increases remained historically high. The analysis linked higher input prices to raw material, oil and freight costs, as well as supply shortages. It estimated that inflation could remain between 3.5% and 4.0% in coming months, forecasting an average of 3.6% in 2026 before easing to 2.5% in 2027. Slower demand growth and weaker confidence could limit the entrenchment of second-round inflation pressures, it said. Hunter said estimates of how long the oil impact would last depended on how events unfolded, and that it could take months, longer or shorter.
Hunter said the bank did not want to cause a recession and, as of the interview, saw no signs of one in the data it monitors, while stressing that the board would watch the situation closely. The Australian Bureau of Statistics had set October 28 as the release date for the September consumer price index. The release follows August’s reading, which showed headline inflation rising to 4.0% annually, while trimmed mean inflation remained at 3.6%. Markets were also watching the preliminary October index reading, which an S&P Global analysis said was due on October 22, ahead of the bank’s next meeting on November 3. Hunter said the full impact and duration of the oil shock would depend on how events developed.