Underlying inflation still above the RBA's target

The consumer price index print that has put a fifth increase of the year on the table is not the number the Reserve Bank watches most closely. Its preferred measure, underlying inflation, ran at an annual 3.6% to September, well short of the board's 2.5% target, and RBA officials have indicated borrowing costs may need to rise further to drag price growth back toward it, citing a materially worse inflation outlook.

Deputy governor Andrew Hauser called the inflation numbers "too high" at Senate estimates on Wednesday. He also flagged a "nightmare" risk that longer-term inflation expectations pick up, though he said it was not necessarily crystallising yet.

What drove the rise in the consumer price index

The Australian Bureau of Statistics released the CPI figures on Wednesday, showing costs climbing as unemployment lifts. Housing, the single biggest category in the index, was the largest contributor to annual inflation, followed by transport.

• •Transport costs rose 8.7% over the past 12 months, largely due to fuel prices tied to the US and Israel conflict with Iran
• •Food prices jumped 3.2% over a year
• •Housing costs were up 5.2%, with builders passing on higher materials and labour costs for new dwellings and electricity prices elevated

Government and markets react

Treasurer Jim Chalmers attributed the rise mainly to high oil prices and a recovering private sector, while saying the government accepts its part in the fight against inflation. He argued ending the Middle East war was the most important thing for Australians under pressure, saying it had been disastrous for cost of living and for inflation worldwide.

Markets read the print as a clear signal. eToro market analyst Josh Gilbert said inflation was becoming a "higher-for-longer" story and that another hike looks imminent after today. Deloitte Access Economics partner Stephen Smith likewise expects a rate rise next week, noting the economy is already slowing and household spending is subdued.

The decision ahead

The cash rate already stands at 4.6%, its highest level in 15 years, after four hikes in 2026. The board's next monetary policy decision falls on 3 November, with most economists tipping another increase.