The Reserve Bank of Australia (RBA) has forecast that headline inflation will peak at 4.5% in the December 2026 quarter, a significant increase from its previous projection of 3.6% made in August. This upward revision is largely attributed to a sharp rise in oil prices, which are now assumed to be 35% higher than previously anticipated. The RBA's November 2026 Statement on Monetary Policy indicates that inflation will remain above 3% until the end of 2027, with a gradual decline expected thereafter.
The latest monthly Consumer Price Index (CPI) indicator recorded an annual headline inflation rate of 4.3% for September 2026, while the quarterly headline inflation rate was 3.9%. The trimmed mean inflation, which the RBA prefers as a gauge of underlying price pressure, stood at 3.7% over the year to the September quarter and is forecast to ease slightly to 3.6% by December 2026.
RBA Governor Michele Bullock emphasized that the central bank is not tightening monetary policy due to the direct impact of oil prices on inflation. Instead, the concern is about preventing high inflation expectations from becoming embedded in price-setting decisions. The current cash rate target is 4.85%, following a 25 basis point increase on November 3, 2026, with the next decision scheduled for December 8, 2026.
The RBA's forecasts are based on several assumptions, including a market-based cash rate path that increases by 35 basis points by mid-2027 before stabilizing at 4.8% in 2028. If these assumptions change, the shape of the inflation hump could also shift. For now, the peak in year-ended inflation does not signal a return to normal but rather the end of accelerating price increases.