Inflation at 4%: Petrol, Power and Building Costs Do the Pushing
Australia's headline inflation reached 4% in the year to August, up from 3.5%. The figures were published on 30 September and sit above the Reserve Bank's 2% to 3% target band. The Guardian
Petrol was the largest contributor. Fuel prices rose 15% in the month, according to the Australian Bureau of Statistics, which said higher transport costs were the main driver of the monthly lift.
Petrol, housing and power drive the monthly read
New home building costs rose 5.4% over the 12 months to August, as builders passed on higher materials and labour costs, the ABS said. Electricity bills were also higher than a year earlier, when households were still getting government rebates.
Last year's bills were held down by rebates, so this year's normal bills look higher by comparison. Economists call this a base effect. The government also ended its cut to fuel excise — the federal tax on fuel — which added directly to pump prices.
Underlying inflation, the measure that strips out volatile items like fuel to show persistent pressure, held steady at 3.6% in the year to August. Headline was 4% and underlying was 3.6%. The gap reflects volatile and regulated prices pushing up the top line. In original terms, the Consumer Price Index rose 0.4% in August. ABS
There is a change to how the data is published. The Bureau says its Monthly Consumer Price Index Indicator has ceased, with September 2025 listed as the latest release in that series. The monthly read now sits inside the quarterly CPI system, not as a separate indicator.
The Bank moves, and markets were ready
The Reserve Bank has lifted its cash rate, the rate that flows through to mortgages and savings, to 4.6%. It is the fourth increase in 2026. The Guardian
The moves happened in this order. On 19 August the Bank had held at 4.35%. By August it had already added 75 basis points since February, or 0.75 percentage points, and it debated a hike at its August meeting. Reuters
The September meeting was scheduled for 28-29 September. On 18 September, markets priced a 93% chance the Bank would lift to 4.6% at that meeting. Reuters
In August the Bank forecast inflation would return to the 2% to 3% band in the second half of 2027. In its August Statement on Monetary Policy, it said inflation was still too high and was not expected to return to the middle of the 2-3 per cent target range until early next year.
EY chief economist Cherelle Murphy said another hike looks likely by the end of the year. That would be a fifth increase in 2026 on current arithmetic.
Canberra's line and what comes next
Treasurer Jim Chalmers said headline inflation was expected to rise because global oil prices were flowing through to Australian petrol prices. He said it in an interview on 28 September. Treasury
He has made a similar point before. Chalmers has said upward pressure on inflation in July around the world was due to movements in the global oil price. In the 2026-27 Budget speech, Treasury set out a more severe scenario where the oil price peaks at $200 and takes three years to fall back down.
House prices fell 2.7% nationally by August from their March 2026 peak. That fall in the value of existing homes sits alongside rising costs for building new ones. One is the price of the stock we have. The other is the cost of adding to it.
The broader context here is a clash Canberra and the Bank both dislike. Headline inflation is lifting on fuel and the unwind of rebates and the excise cut. Underlying inflation is stuck. Building costs are picking up again. The excise and rebate decisions can be defended as budget repair. They still show up in the CPI figures the Board must answer to.
In my view, Chalmers' oil-price explanation is accurate and incomplete. Accurate, because a 15% monthly fuel rise dominates the maths and global crude sets the price at the margin. Incomplete, because Canberra controls the excise and the rebate timetable, and both held down the base then pushed up the current read. The government points overseas; the figures also include policy choices made at home.
Looking at what this means for the next Board decision, the test is persistence. A fuel spike alone can be looked through. A fuel spike with 3.6% underlying inflation, 5.4% annual new-dwelling cost growth and markets already braced for tightening is harder to ignore. That is why Murphy's call for another move before Christmas will get a hearing in Martin Place and the press gallery. Borrowers will hear it differently. Four hikes this year, with a fifth on the table, is tightening that hits with a lag. The politics will too.
