Inflation accelerates, keeping November rate hike in play

New data from the ABS showed the Consumer Price Index (CPI) rose 4% in the 12 months to August, up from 3.5% in July.

Higher fuel costs drove the headline figure as expected, with automotive fuel prices surging 14.8% after full fuel excise rates were restored from 3 August. 

"This was driven by higher world oil prices and the unwinding of the remainder of the federal government's fuel excise relief measures in August," ABS head of price statistics Rachael McCririck said.   

Fuel prices also pushed transport inflation up to 5.6%. 

Separate household spending data from the ABS, published on Tuesday, revealed transport spending rose to 2.3% in August as households' spending on fuel climbed 8.1%. 

Meanwhile, the trimmed mean inflation figure, which excludes fuel price impact, held steady at 3.6% for the third consecutive month. 

Wednesday's inflation results landed broadly in line with forecasts from major banks. 

See also: How the big four reacted to fourth RBA rate hike of 2026

Inflation rebound vindicates RBA's latest hike

The August CPI was released a day after the Reserve Bank lifted the cash rate by 25 basis points to 4.60%.

In handing down its decision, the Board said inflation remained "too high" and warned that some of the upside risks it identified in August were beginning to materialise. 

Fresh data from the ABS appears to support that assessment, revealing prices have in fact begun to flow through to consumers.

Housing inflation, the largest contributor to annual price growth, rose 5.7% over the year on the back of higher prices of new dwellings. 

"New dwelling prices rose 5.4% in the 12 months to August as builders passed on higher costs for materials and labour," Ms McCririck said. 

In her post-meeting press conference, RBA Governor Michele Bullock acknowledged that while the timing of August CPI was not ideal, she said what it would do was "confirm" what they already know. 

The figures also reinforce the RBA's view that inflation pressures are not solely being driven by events overseas. 

See also: Middle East conflict not only the reason for cash rate hike: Bullock

Gov Bullock pushed back against suggestions the latest inflation challenge was entirely the result of higher fuel prices linked to the conflict in the Middle East.

"This isn't all about the Middle East conflict," Gov Bullock said. "It is making it much worse but we did start from a position of excess demand anyway."

She said domestic capacity constraints and stronger-than-expected demand were also contributing to inflationary pressures. 

August inflation keeps another rate hike firmly on the table

The post-meeting hawkish language and the strong August inflation outcome have strengthened the expectation for another interest rate hike when the Board reconvenes in November.

In a statement following Tuesday's decision, CBA said that while its base case remains for rates to stay unchanged until mid-2027, a November hike is now "live".

CBA senior economist Ashwin Clarke said trimmed mean of 3.6% would "most likely" result in quarterly trimmed mean inflation landing at 1% and may trigger an additional hike. 

RBA's latest forecast was for the policy-relevant quarterly figures to come in at 0.8%. 

"Inflation has now been above the mid‑point of the target for almost five years. Looking ahead, we expect the Board to remain on hold in November. Though it will be a 'live' meeting," Mr Clarke said. 

But big bank peer Westpac now believes there will be another hike in November, saying the bar for a follow-up hike "is low".

"November hike is now the base case, absent a lasting resolution of the Middle East conflict beforehand, or some other event that significantly lowers the outlook for energy-related costs in Australia," Westpac Group chief economist Luci Ellis said. 

However, after analysing the post-meeting press conference, NAB, sees rates staying on hold. 

"The RBA Governor stated repeatedly in her press conference that the strategy of bringing inflation down subject to preserving gains in the labour market remains intact," NAB chief economist Sally Auld said.

In NAB's view, this approach suggests policymakers still favour "a more incremental" path for policy adjustment.

"And so for now, we continue to forecast the RBA on hold with the risk that further tightening may be required."

ANZ continues to expect another 25 basis points increase in November. 

The RBA Board will again meet on 2-3 November, less than a week after the September quarter CPI release.