Inflation climbs to four per cent in August, a day after RBA lifted rates to 15-year high

August CPI jumps to four per cent

Australia's annual headline inflation rate climbed to 4 per cent in August, up from 3.5 per cent in July, according to figures released by the Australian Bureau of Statistics on Wednesday, September 30. The Age reports the consumer price index reached a four-month high, driven by higher housing-related costs and elevated petrol prices, after easing steadily since peaking at 4.6 per cent in March. ¹⁷⁵

The monthly move was modest in absolute terms: the consumer price index rose 0.4 per cent in August in original terms, or 0.7 per cent on a seasonally adjusted basis, in the ABS data reported by Investing.com. Economists surveyed ahead of the release had expected a headline print of 4.1 per cent, so the result came in slightly below forecasts, as both Investing.com and MPA noted. ⁴⁶

The West Australian adds that annual headline inflation has now been above the Reserve Bank's 2 to 3 per cent target band for the 13th consecutive month, and that goods inflation rose 4.2 per cent over the year while services inflation climbed 3.7 per cent. ²

Housing and fuel lead the increases

Housing was the largest contributor to annual inflation in August, rising 5.7 per cent, up from 5.0 per cent in July, according to the Bureau of Statistics. ABS head of price statistics Rachael McCririck said the rise reflected increasing costs for both new dwellings and electricity, with new dwelling prices up 5.4 per cent over the year as builders passed on higher materials and labour costs, and electricity bills jumping 13.2 per cent largely because Commonwealth energy rebates have ended. Rents rose 3.6 per cent. ¹⁵⁶

Transport was the second-largest contributor to annual inflation, rising 5.6 per cent on higher automotive fuel prices. McCririck said automotive fuel prices rose 14.8 per cent in August alone, compared with a 7.5 per cent rise in July, driven by higher world oil prices and the unwinding of the remainder of the federal government's fuel excise relief measures. ¹⁷

MPA adds further detail from the ABS release: Hobart recorded the highest annual inflation of the capitals at 4.8 per cent, followed by Adelaide at 4.7 per cent, where housing costs rose 7.9 per cent, while Melbourne was lowest at 3.5 per cent and Sydney came in at 3.9 per cent. Tobacco climbed 11.5 per cent and insurance rose 5.6 per cent over the year. ⁶

Underlying inflation unchanged at 3.6 per cent

While headline inflation moved sharply higher, the trimmed mean, which strips out volatile price movements and is closely watched by the Reserve Bank, was unchanged at 3.6 per cent in August, holding steady for a third straight month according to Yahoo News Australia. Both fuel and electricity were excluded from the trimmed mean this month, which the Canberra Times notes explains most of the gap between the two measures. ¹⁴⁷⁵

MPA reports the trimmed mean rose 0.2 per cent in the month, below the 0.3 per cent economists had forecast, while Investing.com carries the same 0.2 per cent monthly figure alongside Capital Economics' observation that underlying inflation showed no further strengthening, although the measure's 1.0 per cent three-month rise remained above the Reserve Bank's 0.8 per cent quarterly forecast for the third and fourth quarters. ⁶⁴

MPA reports prices driven by domestic conditions, such as housing and education, rose 4.5 per cent over the year, while prices exposed to international trade rose 2.9 per cent, a composition MPA notes gives the central bank's inflation hawks a strong argument that domestically driven pressure persists. ⁶

Hike lands a day before the data

The inflation increase comes a day after the Reserve Bank lifted the official cash rate by 25 basis points to 4.6 per cent, its highest level in 15 years and the fourth rise this year, warning it would lift rates further if needed to bring price growth under control. The bank said some of the upside inflation risks it had identified were materialising, citing higher energy costs, domestic capacity pressures and rising prices for technology-related goods. ¹⁴³

Reserve Bank governor Michele Bullock, speaking after the board's unanimous decision, said excess demand in the economy has to slow to get inflation down sustainably. The Canberra Times reports Bullock conceded the timing of the August index release was unfortunate, coming less than a day after the Reserve Bank's decision, and that she described the August inflation figures as backward-looking, saying the board was focused on how earlier rate rises will affect the economy in coming months. ¹⁷⁶

November meeting in focus as forecasts diverge

The Reserve Bank's monetary policy board will meet again in early November, with Investing.com reporting the meeting is scheduled for November 2-3. The West Australian notes that another increase would take the rate to an 18-year high of 4.85 per cent. Westpac and ANZ are forecasting a further rise in November, while the Commonwealth Bank of Australia and NAB still expect a hold while warning of the risk of another lift, and markets are pricing only around a one-in-four chance of a November move. ⁷⁴²⁶

Commentators were divided on what the print means. KPMG chief economist Brendan Rynne told The West Australian that the data validates the Reserve Bank's decision to raise rates, showing inflation is still far from under control, while EY senior economist Paula Gadsby said she expects the board may need to raise rates again before the end of the year if inflation momentum fails to moderate. Former NAB global head of research Peter Jolly told MPA that historically RBA rate hikes come in doubles or more, and forecast one more hike, possibly in November, followed by an extended hold. ²⁶

Oxford Economics Australia economist Harry McAuley told Yahoo News Australia that sustained higher oil prices are bleeding through prices beyond the pump, and the firm expects this to continue into 2027, forecasting trimmed mean inflation to sit above 3 per cent until early 2028. By contrast, Capital Economics said the latest data support its view that the cash rate has already peaked, with the Reserve Bank likely to remain in wait-and-see mode as it looks for evidence disinflation is taking hold. ⁵⁴

Political response

Treasurer Jim Chalmers told The West Australian that the numbers confirm the overwhelming influence on August inflation was higher global oil prices, and that all of the increase in annual headline inflation came from a combination of higher fuel costs and the unwinding of last year's energy rebates. Prime Minister Anthony Albanese, at a press conference in Melbourne, cited $178 billion in government savings while criticising the Coalition's promise of $110 billion in new spending, and rejected suggestions of contradictory messaging between the government and the Reserve Bank. ²¹³

The spending debate drew further voices. Former Reserve Bank governor Philip Lowe told an Institute of Public Affairs podcast, released on Tuesday evening, that excessive government spending was making inflation worse, and Yahoo News Australia reports the federal budget recorded a $22.3 billion deficit in 2025-26, with spending as a proportion of GDP reaching 26.9 per cent. Assistant Treasurer Daniel Mulino said Labor had made $64 billion in savings over the next four years in the May budget. ⁵