Highlights

  • Headline CPI rose 4.3% over the year to September 2026, measured on the RBA's monthly indicator.
  • The RBA aims to return inflation to the 2.5% midpoint of the 2-3% target range, not merely to the top of the band.
  • Underlying inflation, the trimmed mean, has been around 3.5% for approximately six months according to Bullock's September remarks.
  • The gap to the midpoint differs substantially depending on whether you use headline or underlying inflation as your starting point.

The most direct question in Australian monetary policy right now is also the simplest to state: how far does inflation need to fall? The headline number, 4.3%, and the target range, 2-3%, leave an obvious gap. But the size of that gap depends on which measure and which benchmark you use, and the answer changes the picture for what lies ahead.

Three Ways to Measure the Gap

This publication's arithmetic, not an RBA calculation: headline inflation at 4.3% minus the 2.5% midpoint leaves a gap of 1.8 percentage points. Against the top of the range at 3%, the gap shrinks to 1.3 percentage points. If underlying inflation at approximately 3.5% is used instead, the gap to the midpoint is about 1 percentage point and to the top of the range about half a percentage point.

Governor Bullock told the Senate on 28 October that the Board aims to return inflation to the midpoint of the 2-3% range, with some flexibility on timing to balance the full employment objective. That goal, the midpoint, is the more demanding benchmark and produces the larger gap in these calculations.

Why Headline and Underlying Differ

Headline CPI captures every item in the consumer price basket, including volatile ones. In the current environment, energy prices are a major contributor: the Board's September minutes recorded that petrol and diesel prices were 13% above the August forecasts. A sharp rise in a small number of items can push headline above underlying.

Underlying measures such as the trimmed mean strip out the largest price rises and falls each period before averaging the remainder. The aim is to reveal the broad trend rather than the effect of a few large swings. Bullock said at the September media conference that "the underlying inflation rate's been about 3.5 per cent for the past six months." Her Senate statement on 28 October described recent annual inflation as running at around 3.5 to 4 per cent.

How the Board Describes the Task

The Board has not set a timeline for reaching the target midpoint that overrides the November forecasts. The August Statement on Monetary Policy contained a central projection, and Bullock referred to it in her Senate statement. A fresh set of forecasts is due on 3 November. That will update the Board's published view of when inflation is expected to return to the midpoint.

Until then, the gap between current readings and the target remains the defining arithmetic of the tightening cycle: roughly one to 1.8 percentage points depending on measure and benchmark, and described by the Governor as likely to take "some time" to close.