Two similar-looking headline inflation numbers, a separate underlying measure and a Governor's shorthand of "about 3.5 per cent" can make Australia's inflation picture confusing; here is how the pieces fit together.

Pick up any discussion of Australian inflation right now and you may encounter several different numbers: 4.0 per cent, 3.9 per cent, 3.6 per cent and "about 3.5 per cent". None of them is wrong. They measure different things over different periods, and knowing which is which makes it easier to follow what the Reserve Bank is responding to.

Which number is which?

Start with the two headline figures in the title.

4.0 per cent is the annual change in the monthly CPI indicator for August 2026, as shown on the RBA's website. It is a headline measure, meaning it reflects the overall change in consumer prices, and it covers the year to August.

3.9 per cent is headline CPI over the year to the June quarter of 2026, as reported in the RBA's August Statement on Monetary Policy. It is also a headline measure, but it is based on quarterly data and covers a period ending two months earlier.

So the difference between 4.0 and 3.9 is not a contradiction. One is a more recent monthly reading; the other is the official quarterly figure for the period to June. Both point to headline inflation running at around 4 per cent, well above the RBA's 2–3 per cent target range.

And what about underlying inflation?

Headline figures can be pushed around by large swings in individual prices. To see the broader trend, the RBA pays close attention to underlying measures, particularly the trimmed mean.

3.6 per cent is trimmed mean inflation over the year to the June quarter, from the August Statement on Monetary Policy and noted in the August Board minutes.

About 3.5 per cent is how Governor Michele Bullock described underlying inflation at her 29 September media conference. "Inflation is about 3.5 per cent," she said, a percentage point above the 2.5 per cent midpoint of the target. That was her approximation rather than a new data release.

On 18 September, Bullock told the House of Representatives Standing Committee on Economics: "Over the past year, both headline and underlying measures of inflation were around or a little above 3½ per cent." The more recent monthly headline reading of 4.0 per cent for August sits above that range.

Where energy fits in

Energy is one of the most direct influences on the headline figures. Bullock told parliament: "Higher oil prices have increased inflation directly through their impact on petrol prices." She also said: "Oil and related prices have increased sharply again and will add directly to inflation."

At her September media conference, she connected this to the broader geopolitical backdrop: "the Middle East conflict has been a big shock, and it's made us all poorer in this country." She added: "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher."

The Board's 29 September statement listed a broader Middle East conflict and higher global energy prices among the upside risks to inflation that are materialising. It also cited AI-related demand pushing up technology goods prices, capacity pressures in the economy and firms raising or planning to raise prices.

Underlying inflation matters because it gives a better sense of whether price pressures are broad and persistent. Bullock was clear on her view of the source: "Inflation is too high and has been driven by domestic capacity pressures."

What the forecasts said, and their caveat

The August Statement on Monetary Policy set out where the RBA expected both measures to go. Its forecasts, on a year-ended basis, were:

  • Headline CPI: 3.9 per cent in June 2026, 3.6 per cent by December 2026, 2.8 per cent by June 2027 and 2.6 per cent by December 2027, before settling at 2.4 per cent in 2028.
  • Trimmed mean: 3.6 per cent in June 2026, 3.3 per cent by December 2026, 3.0 per cent by June 2027 and 2.6 per cent by December 2027, before 2.4 per cent in 2028.

Headline inflation was expected to "return to the 2–3 per cent target range by early 2027", while underlying inflation was forecast to stay above 3 per cent until mid-2027. Bullock told parliament that "inflation will not return to around the midpoint of the target range until late 2027."

Two caveats apply. First, those forecasts were prepared before the September hike, assuming a cash rate of roughly 4.3–4.5 per cent; the cash rate is now 4.60 per cent. Second, they assumed Brent oil at US$94.9 a barrel in June 2026, easing to US$81.2 by December 2026. Energy prices are one of the uncertainties the Board has flagged.

The Board's September statement also said recent inflation outcomes had been stronger than expected.

Against that backdrop, the Monetary Policy Board's decision on 29 September to lift the cash rate target by 25 basis points to 4.60 per cent reflected the overall inflation picture. Its statement said inflation remains elevated, short-term inflation expectations are high and the Board is focused on preventing high inflation from becoming embedded.

Bullock offered a rule of thumb for interpreting quarterly data: inflation needs to be "more around .6 rather than .8 and 1". She also gave the bigger context: "we have been outside of our target now for six years."

The next CPI update is due on 28 October, less than a week before the Board's next decision at 2.30 pm on 3 November. Bullock has said she is "not going to give you forward guidance", and the Board has said it will increase the cash rate further if needed and remain attentive to the data.

The bottom line

Australia's inflation picture is easier to read once the measures are separated. Headline inflation is running at about 4 per cent: 4.0 per cent in the year to August on the monthly indicator and 3.9 per cent in the year to the June quarter. Underlying inflation, on the trimmed mean, was 3.6 per cent to June, which Bullock rounded to "about 3.5 per cent".

All of these sit above the 2–3 per cent target. Higher energy prices feed directly into the headline figures, while the Board's stated focus is preventing high inflation from becoming embedded. The August forecasts pointed to a gradual return to target, but they were made before the September hike, and the 28 October release will be the next test of which way the numbers are moving.