Australia’s inflation hits 4.0% as oil rises about a third above RBA assumptions
Key Facts
The Reserve Bank of Australia is facing mounting pressure as annual inflation accelerated to 4.0% in August from 3.5% in July, while Deputy Governor Andrew Hauser said on October 21 that the inflation outlook was "much worse" than the bank expected in its August report. The signal comes ahead of the release of September data and the monetary policy board meeting scheduled for November 2 and 3. The cash rate target is 4.60%, after the bank raised it by 25 basis points on September 29, its third increase since the start of the year. The bank aims to keep inflation between 2% and 3%, putting the latest annual reading above its target band. But Hauser’s remarks do not settle the next meeting’s decision; he said the board is weighing inflation risks against economic data.
Hauser said oil prices are about a third higher than the bank assumed in its August forecasts, amid an expanding conflict in the Middle East and global energy prices rising above previous assumptions. The bank’s September statement said global energy prices were "much higher" than those assumptions. Energy is one source of risk to the price path, while demand from artificial intelligence adds further pressure: the bank said it is driving rapid growth in prices for global technology-related goods. The board also pointed to continuing domestic capacity pressures. Hauser said inflation expected for the quarter would be higher than the bank assumed in August, unless there was a very large downside surprise in the quarter’s final month. He described the upcoming quarterly data as important for assessing underlying pressures and capacity.
Available price data reflect a mix of an accelerating headline index and a steady underlying measure. The consumer price index rose 0.4% in August on an original monthly basis, and 0.7% after seasonal adjustment. By contrast, trimmed mean inflation held steady at 3.6% annually in August, unchanged from the previous period, according to the Australian Bureau of Statistics. The figures show that the annual index’s rise from July to August coincided with no change in the cited underlying measure. The wage price index rose 0.8% in the June quarter and 3.2% in the 12 months through that quarter. This comes as the bank sees domestic capacity pressures persisting.
The bank raised its rate by 25 basis points to 4.60% in September, saying the three increases since the start of the year had tightened financial conditions. But it also said inflation remained high enough to justify further tightening if needed. In the meeting minutes, the bank reported that all economists it surveyed expected a rate increase at that meeting, and that several expected another increase later in the year. The minutes also showed that market pricing at the time pointed to an additional increase of about 15 basis points by the end of 2026, followed by about 30 more basis points in the first half of 2027. The minutes linked higher rate expectations to stronger-than-expected inflation and activity data in Australia, higher oil prices, and the bank’s recent communications.
Market expectations for the November decision shifted in the days before Hauser’s remarks. Overnight index swap pricing showed a roughly 51% probability of a 25-basis-point increase to 4.85% on October 21, compared with 22% the previous day, according to RateProbability data cited by Investing.com. These percentages reflect market pricing and are not an announced bank decision. This comes as Hauser said the bank does not target the current inflation figure directly, adding: "You can’t target current inflation; it’s in the past." According to his remarks, the bank is focused on assessing what the quarterly data mean for underlying pressures and the monetary policy path. September data therefore remain important ahead of the decision, without making a rate increase inevitable on their own.
The Australian Bureau of Statistics is scheduled to release the September consumer price index on October 28, 2026. The monetary policy board will then meet on November 2 and 3, with its decision statement due on November 3 at 2:30 p.m. AEDT. These dates follow Assistant Governor Sarah Hunter’s interview on 60 Minutes, which the bank said aired on October 25 and had been recorded in advance on October 21. The available evidence contains no documented details of her remarks on oil or supply chains, so the published assessment here remains focused on Hauser’s warning and the price developments reported by the bank and the statistics bureau. The September reading will be the first scheduled release before the November meeting, while the board will announce its decision at the scheduled time.