The Reserve Bank's November forecasts have headline Inflation reaching 4.5% by December 2026, almost a full percentage point above what it expected only three months ago.

One number in the November Statement on Monetary Policy (SMP) shows how far the inflation picture has darkened since winter. The Reserve Bank now forecasts year-ended headline CPI inflation of 4.5% for December 2026. In the August Statement, the forecast for the same period was 3.6%.

That 0.9 percentage point revision came out on the same afternoon, 3 November 2026, that the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.85%, effective 4 November. It was the fifth increase of 2026, following moves in February, March, May and September, and it takes the cumulative tightening this year to 125 basis points. Unlike September's unanimous decision, this one was a majority call: six members voted to raise, while three preferred to hold at 4.60%.

What the new forecast path looks like

The November SMP forecast table sets out a path in which headline inflation rises further before it eases. The figures are year-ended, with the August forecast in brackets:

  • June 2026: 3.9% (3.9%)
  • December 2026: 4.5% (3.6%)
  • June 2027: 3.7% (2.8%)
  • December 2027: 2.7% (2.6%)
  • June 2028: 2.5% (2.4%)
  • December 2028: 2.4% (2.4%)

Two features stand out. First, the biggest upgrades are concentrated in the near term: the December 2026 and June 2027 forecasts were each raised by 0.9 percentage points. Second, by December 2028 the November and August paths meet again at 2.4%, inside the 2–3% target band.

The RBA's central case, then, is a taller and longer hump in inflation rather than a permanent step up. The decision statement put it this way: "Inflation is now forecast to remain elevated through much of 2027".

It is worth repeating that these are forecasts, not outcomes. They rest on assumptions, including a cash rate path drawn from market pricing as at 28 October and an Exchange Rate held at its 28 October level. The Bank itself describes uncertainty as heightened, and it has outlined scenarios in which inflation is higher and activity weaker than the central case.

Why headline inflation is running hotter

The monthly data had already been pointing in this direction. Monthly headline CPI was 3.5% year-ended in July 2026, 4.0% in August and 4.3% in September. A December outcome of 4.5% would extend that climb by a little more.

The decision statement identifies several forces behind the higher outlook. In paraphrase, these include higher fuel and Commodity prices linked to the conflict in the Middle East, capacity pressures in the domestic economy, and AI-related Investment pushing up the prices of technology goods.

Fuel is a particularly direct channel into the headline number, because petrol and diesel feed straight into the household price basket. The minutes of the September meeting recorded that domestic petrol and diesel prices were 13% above the August forecasts. Deputy Governor Andrew Hauser, speaking at a Citi conference in Sydney on 21 October, noted that oil was above $100 a barrel, about a third higher than the August assumption. "The inflation outlook looks materially worse than we projected in the August report," he said.

The SMP assumes energy prices decline from their elevated levels. It also acknowledges they could stay high, or rise further, if shipping and refining disruptions persist. The 4.5% figure is best read as a central estimate with risks on both sides.

Keeping headline and underlying apart

Headline CPI captures every price change in the basket, including volatile items such as fuel. The RBA's preferred gauge of underlying inflation, the trimmed mean, removes the largest price movements at each end of the distribution to give a steadier read on the trend.

That distinction matters for interpreting the new forecast. The trimmed mean was 3.7% year-ended in the September quarter 2026, and 1.0% in the quarter itself on a seasonally adjusted basis. The November SMP forecasts trimmed mean inflation of 3.6% at December 2026, up from 3.3% in the August Statement. So the gap between headline and underlying inflation is forecast to widen to 0.9 percentage points by year-end, with headline at 4.5% and the trimmed mean at 3.6%.

That pattern suggests energy and other volatile prices are doing a large share of the lifting on the headline measure. But the Board was explicit that fuel is not the whole story: "Inflation remains elevated and recent data indicate that it is broadly based."

How the Board is reading the spike

A headline jump driven mainly by an energy shock is sometimes something a Central Bank can afford to look through, on the basis that it will fade. The Board's language indicates it is not prepared to take that approach this time. The statement warned that "there is an increasing risk that higher inflation expectations will become embedded", and noted that some measures of expectations have risen lately.

Hauser framed the same concern bluntly in October: "We can't allow expectations to shift away from the target." He also pointed to a rising share of firms that see 3–3.5% inflation as the "new normal".

Governor Michele Bullock had flagged the shift in her opening statement to the Senate Economics Legislation Committee on 28 October. "Recently, inflation has been around 3½ to 4 per cent in year-ended terms," she said, before adding: "Inflation will therefore likely be higher than was our base case in August."

The SMP summed up the position in a single sentence: "Inflation in Australia remains well above target and a number of upside risks have crystallised since the August Statement."

The bottom line

The 4.5% December forecast for headline inflation is the clearest marker of how far the outlook has moved since August. It reflects higher fuel prices, capacity pressures and technology-related price rises, sitting on top of underlying inflation that remains well above the 2–3% target. The RBA still expects headline inflation to ease to 2.7% by December 2027 and 2.4% by December 2028, but those projections depend on assumptions about energy prices, interest rates and the economy that may not hold.

The next data point is the monthly CPI release on 25 November 2026, ahead of the Board's final decision of the year at 2.30 pm on 8 December. Anyone weighing how higher inflation and interest rates affect their own circumstances can consider speaking with a licensed adviser or their lender.