Key Highlights

  • The RBA assumes Brent Crude at US$109.5 a barrel in December 2026.
  • The assumed path falls to US$79.1 by December 2028.
  • The assumption is a technical input to the forecasts, not a prediction of oil prices.
  • A scenario with crude near US$100 a barrel would keep underlying Inflation higher.

Central banks do not forecast oil prices so much as assume them. Because energy feeds into transport, freight, electricity and the cost of producing almost everything, the assumption a forecaster picks for Crude Oil ripples through the entire outlook. In the November 2026 Statement on Monetary Policy (SMP), the Reserve Bank of Australia (RBA) assumes Brent crude at US$109.5 a barrel in December 2026.

That figure helps explain why the RBA's headline inflation forecasts jumped between August and November, and why the Monetary Policy Board raised the cash rate target by 25 basis points to 4.85 per cent on 3 November.

The path the RBA has pencilled in

The SMP does not assume oil stays at US$109.5. Instead, it sets out a declining path for Brent:

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

On that path, Brent falls by roughly 28 per cent between December 2026 and December 2028. The decline is a key reason the RBA expects energy cost pressures to ease from mid-2027, though the SMP notes they ease by less than had been expected in August.

The SMP links the higher energy prices to the Middle East conflict. The Monetary Policy Board's statement noted simply: "The Middle East conflict remains unresolved".

What households pay at the bowser depends on more than the price of crude. Refiners and fuel suppliers add a Margin for turning crude into petrol and diesel, and those refined fuel margins have also been elevated.

The SMP assumes refined fuel margins return to historical averages by mid-2027. That is about two quarters later than the RBA had assumed in August. even if crude prices follow the assumed path, the relief at the pump is expected to arrive later than previously thought.

How the oil assumption flows into inflation

The clearest fingerprint of the oil assumption is in headline CPI, which includes fuel and energy directly. The RBA's November forecasts for headline inflation (year-ended, August forecast in brackets) are:

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

Headline inflation is forecast to peak at 4.5 per cent in the December quarter of 2026, which is the same quarter in which the Brent assumption is at its highest. As the assumed oil price declines, headline inflation is forecast to fall, reaching the 2.5 per cent midpoint of the target band in mid-2028.

The trimmed mean, an underlying measure that strips out the most extreme price movements, is affected less directly, but energy costs can still seep in as businesses pass on higher transport and input costs. The RBA's trimmed mean forecasts are 3.6 per cent in December 2026 and 3.5 per cent in June 2027, before easing to 2.9 per cent by December 2027.

For context, the most recent actual data show headline CPI rose 3.9 per cent over the year to the September quarter of 2026 and 4.3 per cent over the year to the month of September. The trimmed mean rose 3.7 per cent over the year to the September quarter.

Higher energy costs do not only lift prices. They also squeeze household budgets, leaving less to spend elsewhere. The SMP notes that GDP growth has slowed and that household consumption has been a key drag. Real household Disposable Income growth is forecast to slow to 1.0 per cent by December 2026.

The RBA's downside activity scenario explicitly includes oil. If households and businesses respond more strongly than expected to higher oil prices, higher interest rates and falling house prices, GDP would be about 1.0 per cent lower by end-2028 and Unemployment 0.3 percentage points higher, with inflation only modestly lower.

Why an assumption is not a prediction

It is worth being clear about what the US$109.5 figure is. It is a technical assumption used to build the forecasts, not a statement by the RBA about where oil will trade. Like the cash rate path, which is based on market pricing as at 28 October 2026, and the exchange rate, which is assumed to stay flat with the trade-weighted index at about 65.3, the oil path is one of the conditioning inputs that underpin the projections.

Because the assumption is so influential, the RBA also tests what happens if it is wrong. In one scenario set out in the SMP, crude stays around US$100 a barrel, with elevated refined product prices. In that case, underlying inflation would be around 2¾ per cent by end-2028 rather than about 2½ per cent. A prolonged energy disruption is listed among the upside risks to inflation.

The Board's statement acknowledged the uncertainty: "There continue to be heightened uncertainties about the outlook for domestic economic activity and inflation." It also said "there are scenarios where inflation is higher and activity lower than forecast."

The policy link

Oil prices are set in global markets, beyond the reach of Australian monetary policy. What monetary policy can influence is whether those increases feed into broader price-setting and expectations. On that front, the majority of the Board judged that "there is an increasing risk that higher inflation expectations will become embedded."

That is why an external price shock can still shape domestic Interest Rate decisions. Six members voted to raise the cash rate target to 4.85 per cent, while three voted to leave it at 4.60 per cent. The statement gives no reasons for the minority view.

The bottom line

The RBA's assumption that Brent crude sits at US$109.5 a barrel in December 2026, before easing to US$79.1 by December 2028, underpins its forecast that headline inflation peaks at 4.5 per cent in the December quarter and then declines. Refined fuel margins are assumed to take until mid-2027 to normalise, two quarters later than previously thought.

These are assumptions, not predictions, and the RBA has shown what happens if oil stays closer to US$100: underlying inflation would settle nearer 2¾ per cent than 2½ per cent by end-2028. With the conflict in the Middle East unresolved, the oil path remains a key input to watch ahead of the Board's next decision on 8 December 2026.