Above 3% Until End-2027: The Long Wait Built Into the New Inflation Forecasts

Sonal Goyal

04 November 2026 05:13 PM AEDT

Above 3% Until End-2027: The Long Wait Built Into the New Inflation Forecasts

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Key Highlights

Headline and underlying Inflation are forecast to stay above 3 per cent until the end of 2027.
The return to the top of the target range is about three quarters later than previously forecast.
The RBA aims to keep inflation between 2 and 3 per cent over time.
The delay reflects the persistence of price pressures and expectations.

The RBA aims to keep inflation between 2 and 3 per cent. Its latest forecasts imply that inflation will stay above that range for more than another year.

In the November Statement on Monetary Policy (SMP), released on 3 November 2026, the RBA says headline and underlying inflation are expected to remain above 3 per cent until end-2027. The Monetary Policy Board's statement says inflation is expected to return to the top of the target range in late 2027, "about three quarters later than previously forecast".

How the timeline moved

Comparing the November forecasts with the August ones shows how the timeline has shifted. The figures below are year-ended RBA forecasts, with August forecasts in brackets.

| | Dec 2026 | Jun 2027 | Dec 2027 | Jun 2028 |

|---|---|---|---|---|

| Headline CPI | 4.5 (3.6) | 3.7 (2.8) | 2.7 (2.6) | 2.5 (2.4) |

| Trimmed mean | 3.6 (3.3) | 3.5 (3.0) | 2.9 (2.6) | 2.5 (2.4) |

In August, the RBA expected trimmed-mean (underlying) inflation to reach 3.0 per cent by June 2027 and headline inflation to be back inside the band at 2.8 per cent. Now both measures are well above 3 per cent at that point. The trimmed mean only drops below 3 per cent in the December 2027 forecast, at 2.9 per cent. Both measures reach 2.5 per cent, the midpoint of the target range, in mid-2028.

The Board summarised the change in two phrases: "Inflation is now expected to remain above 3 per cent for the coming year." and "Inflation is now forecast to remain elevated through much of 2027". The SMP describes the inflation outlook as "revised materially higher".

What is stretching the timeline

Energy. Higher energy prices from the Middle East conflict have added to pressures. The RBA's oil price assumption for the December quarter 2026 is 35 per cent higher than in August, and still 11 per cent higher by end-2028. Refined fuel margins are assumed to return to historical averages by mid-2027, about two quarters later than assumed in August.

Breadth. The statement says "the data have confirmed that underlying inflation remains broadly based." In the September quarter, the trimmed mean rose 1.0 per cent, up from 0.8 per cent in the June quarter, and was 3.7 per cent year-ended. Headline CPI inflation was 3.9 per cent year-ended in the September quarter, and the monthly headline measure was 4.3 per cent in the year to September 2026.

Wages. The RBA revised its Wage Price index forecasts higher across the period, citing tighter capacity, higher inflation and inflation expectations. It now forecasts 3.4 per cent for December 2026, 3.2 per cent for December 2027 and 2.9 per cent for December 2028. Liaison contacts report elevated wage expectations, pointing to little easing over the next year.

Productivity. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "continued weak productivity growth means that the economy cannot grow strongly without putting pressure on inflation."

The risk of an even longer wait

The longer timeline is itself a reason for concern. The majority on the Board judged that "there is an increasing risk that higher inflation expectations will become embedded." The longer inflation stays above target, the more likely it is that households and businesses start to expect it to continue.

The SMP sets out how the wait could become longer still:

If crude stays around US$100 a barrel with elevated refined product prices, underlying inflation would be around 2¾ per cent by end-2028, instead of about 2½ per cent.
Stronger AI-related Demand could keep global growth and inflation higher and add to domestic capacity and construction cost pressures.
Capacity pressures in the economy may be understated.

It also describes how the wait could be shorter. Inflation could fall faster if higher rates and falling housing prices weigh on spending. Overall, the RBA judges domestic inflation risks to be skewed to the upside.

The cost of getting there

The RBA's forecasts show what lower inflation will cost. GDP growth is forecast at 1.3 per cent over the year to December 2027, down from 1.6 per cent in the August forecasts. Unemployment is forecast to rise to 4.9 per cent by December 2027 and 5.1 per cent by December 2028, about a quarter of a percentage point higher than in August. Growth is expected to stay below trend.

These forecasts assume a cash rate path based on market pricing as at 28 October 2026. That path implies a rise of about 35 basis points by mid-2027 and a stable rate of 4.8 per cent in 2028. It is market pricing, not an RBA promise, and the RBA judges it to be restrictive.

The statement says "the Board is focused on its mandate to deliver price stability and full employment." The long wait for inflation to return to target is the reason the Board continues to tighten even as unemployment is forecast to rise.

The Governor's Senate testimony explained why the timeline matters: "High inflation hurts everyone." She continued: "It means higher grocery costs, higher rent, and higher electricity bills." and "It makes everyone's pay packets and savings worth less".

The RBA's wage and price forecasts suggest that pressure will continue for some time. Its forecast of 3.4 per cent WPI growth for December 2026 is below its 4.5 per cent headline inflation forecast for the same quarter.

The bottom line

The RBA's November forecasts push the return of inflation to the 2–3 per cent range back by about three quarters. Both headline and underlying inflation are now expected to stay above 3 per cent until end-2027 and reach the 2.5 per cent midpoint only in mid-2028. Energy prices, broadly based inflation and firmer wages are driving the delay, and the RBA sees the risks as tilted towards an even longer wait. These are forecasts that depend on oil prices and an assumed market rate path. The next CPI release is on 25 November and the next Board decision on 8 December.

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