Australian inflation runs hot in Q3, cements case for imminent rate rise
Stubborn inflation has forced the RBA to lift interest rates four times this year to a 15-year high
Published Wed, Oct 28, 2026 · 11:45 AM
[SYDNEY] Australia’s inflation picked up in the third quarter on higher fuel costs, while stubbornly hot underlying price pressures cemented market expectations of a fifth interest rate hike as soon as next week.
Coupled with hawkish comments from the central bank chief, the inflation data led markets to price in an 88 per cent probability that the Reserve Bank of Australia (RBA) will lift the current 4.6 per cent cash rate by a quarter point next Tuesday (Nov 3), up from 69 per cent before.
The Australian dollar rose 0.3 per cent to US$0.7046 and three-year government bond futures slid five ticks to 95.1.
Stephen Smith, partner at Deloitte Access Economics, said: “Progress in reducing inflation has stalled, and the longer that persists, the greater the risk that businesses and households begin to treat above-target inflation as normal.”
“The reserve bank has little appetite to allow inflation expectations to drift higher after such a prolonged period above target.”
The consumer price index (CPI) rose 1.3 per cent in the third quarter, after an increase of 0.6 per cent the previous quarter, data from the Australian Bureau of Statistics showed on Wednesday.
Annual CPI inflation ran at 3.9 per cent.
The key trimmed mean measure of core inflation rose by 1 per cent in the quarter, matching forecasts and nudging the annual pace higher to a lofty 3.7 per cent, well above the RBA’s target range of 2 to 3 per cent.
Inflation data for September also ran hot, with CPI rising 0.8 per cent from the previous month, lifting the annual pace to 4.3 per cent, the highest since March.
Stubborn inflation already forced the RBA to lift interest rates four times this year to a 15-year high, and the bank warned that it was ready to hike further if needed. That brought its tightening this year to a full percentage point, far ahead of many other developed economies.
Now, with benchmark Brent crude oil up another 10 per cent this quarter to trade above US$110 a barrel, policymakers worry that this could feed into the broader price pressures in the economy, and inflation could risk becoming embedded in expectations after more than five years above target.
RBA deputy governor Andrew Hauser said in October that the central bank knew the CPI data could come in hotter than it had forecast in August, and the outcome would help shape its judgement on spare capacity in the economy and the inflation pressures stemming from it.
Wednesday’s report showed new dwelling prices were flat in September, as some builders increased discounts in response to slowing new demand in the housing sector.
However, both goods and services inflation accelerated in September, up 4.6 per cent and 4.1 per cent, respectively, from a year earlier, suggesting broad-based price pressures in the economy.
“We had anticipated the board’s next move to be a hike early next year. But all signs now point to that move coming next week,” said Harry McAuley, economist for Oxford Economics Australia. REUTERS
