Key Highlights

  • The RBA's oil price assumption for the December quarter is 35 per cent higher than in August.
  • The oil revision explains much of the upgrade to near-term Inflation forecasts.
  • Other factors changed too, including the path of the cash rate.
  • The RBA tested a higher-for-longer oil price scenario in its forecasts.

Every quarter, the Reserve Bank of Australia (RBA) refreshes the assumptions that sit beneath its economic forecasts. Most revisions are modest. The change to the oil price assumption in the November 2026 Statement on Monetary Policy (SMP) was not. The assumed oil price for the December quarter of 2026 is 35 per cent higher than in the August SMP.

The revision fades over time but does not disappear. By the end of 2028, the oil price assumption is still 11 per cent higher than it was in August. That pattern, a large near-term increase tapering to a smaller lasting one, is mirrored in how the RBA's inflation forecasts have changed.

Measuring the revision

The SMP sets out the new Brent Crude assumption at several points:

  • December 2026: US$109.5 a barrel
  • June 2027: US$95.3
  • December 2027: US$86.9
  • December 2028: US$79.1

Compared with the August assumptions, the SMP reports two key benchmarks:

  • December quarter 2026: 35 per cent higher than in August.
  • End-2028: 11 per cent higher than in August.

A 35 per cent upgrade to the near-term price of the economy's most important energy input is a substantial shift in the starting conditions for any forecast. The SMP attributes the higher energy prices to the Middle East conflict, which the Monetary Policy Board's statement says "remains unresolved".

Crude oil is not the only energy assumption that moved. The RBA now assumes refined fuel margins, the gap between crude prices and the wholesale price of petrol and diesel, return to historical averages by mid-2027. In August, that normalisation was expected about two quarters earlier.

Together, these changes mean energy cost pressures are now expected to ease from mid-2027, but by less than the RBA thought in August.

Matching the oil revision to the inflation revision

The scale of the oil revision becomes clearer when it is set beside the changes to the RBA's headline CPI forecasts. Headline CPI includes fuel directly, so it is where a change in oil assumptions shows up most quickly. The RBA's year-ended headline forecasts, with the August figure and the size of the revision, are:

  • December 2026: 4.5 per cent, up from 3.6 per cent (+0.9 percentage points)
  • June 2027: 3.7 per cent, up from 2.8 per cent (+0.9 percentage points)
  • December 2027: 2.7 per cent, up from 2.6 per cent (+0.1 percentage points)
  • June 2028: 2.5 per cent, up from 2.4 per cent (+0.1 percentage points)
  • December 2028: 2.4 per cent, unchanged

The largest headline revisions are concentrated in late 2026 and the first half of 2027, the period when the oil assumption was raised the most. By late 2027 and 2028, as the oil revision shrinks towards 11 per cent, the headline inflation revisions are small.

Underlying inflation, measured by the trimmed mean, was also revised up, though the oil price is not the only driver of that measure. The trimmed mean forecast for June 2027 rose from 3.0 to 3.5 per cent, and for December 2027 from 2.6 to 2.9 per cent. Other factors matter too, including the broadly based price pressures noted by the Board and wage forecasts that were revised higher.

Not the only thing that changed

It would be a mistake to attribute every revision in the November forecasts to oil. The SMP describes the inflation outlook overall as "revised materially higher", with headline and underlying inflation expected to stay above 3 per cent until the end of 2027. Several other forces are at work:

  • Underlying momentum. The trimmed mean rose 1.0 per cent in the September quarter, up from 0.8 per cent in the June quarter, and 3.7 per cent over the year.
  • Wages. The Wage Price index forecasts were revised higher, with the RBA citing tighter capacity, higher inflation and inflation expectations.
  • Interest rates. The cash rate assumption, based on market pricing as at 28 October 2026, is up to 50 basis points above the August path. That path is market pricing, not an RBA commitment.

Meanwhile, the growth outlook was revised lower in later years. The RBA now forecasts GDP growth of 1.3 per cent in December 2027, down from 1.6 per cent in August, partly reflecting weaker housing and the higher cash rate path.

Testing a higher-for-longer oil price

Because the oil assumption has already shifted so far, the RBA has also examined what happens if prices do not decline as assumed. In a scenario in the SMP, crude stays around US$100 a barrel with elevated refined product prices. Under that scenario, underlying inflation would be around 2¾ per cent by end-2028, compared with about 2½ per cent in the central forecast.

The SMP lists a prolonged energy disruption as one of the upside risks to inflation, and says domestic inflation risks remain skewed to the upside.

The Monetary Policy Board lifted the cash rate target by 25 basis points to 4.85 per cent on 3 November 2026, its fifth increase this year. The statement records that "Inflation is now expected to remain above 3 per cent for the coming year" and that the majority saw "an increasing risk that higher inflation expectations will become embedded."

A large, persistent rise in fuel costs is precisely the kind of shock that can influence how households and businesses think about future prices. Six members voted to raise rates and three voted to hold at 4.60 per cent. The statement does not give the minority's reasons.

The bottom line

The RBA raised its oil price assumption for the December quarter of 2026 by 35 per cent compared with August, and its end-2028 assumption by 11 per cent. It also pushed back the expected normalisation of refined fuel margins by about two quarters, to mid-2027.

Those changes line up closely with the timing of the biggest revisions to headline CPI forecasts, which rose 0.9 percentage points for both December 2026 and June 2027. The oil revision is not the whole story, but it is a large part of why the RBA now expects headline inflation to peak at 4.5 per cent in the December quarter. The next CPI release is due on 25 November 2026.