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Inflation fell from 7.9 per cent at the end of 2022 into the Reserve Bank's target range for a time in 2024 and 2025, but by the RBA's own account both headline and underlying measures have since moved back above 3½ per cent.

For a period, the story of Australian inflation looked like one of steady progress. Then the progress stalled. Understanding how that happened, using the Reserve Bank of Australia's (RBA) own words and data, helps explain why the cash rate has risen four times in 2026 and now sits at 4.60 per cent.

Governor Michele Bullock summarised the arc in her opening statement to the House of Representatives Standing Committee on Economics on 18 September: "Inflation fell significantly from its peak of 7.9 per cent at the end of 2022 to be within the 2–3 per cent target range for a period in 2024 and 2025."

Another line in the same statement was less comforting: "Over the past year, both headline and underlying measures of inflation were around or a little above 3½ per cent."

The three stages of the journey

Stage one: the descent from 7.9 per cent. The starting point was a peak of 7.9 per cent at the end of 2022. From there, inflation fell significantly, in the Governor's words, eventually reaching the RBA's target range of 2–3 per cent.

That achievement matters for context. It shows inflation had been brought back to the band the RBA aims for. The Bank's goal is not merely to be inside that range but to aim for the 2.5 per cent midpoint.

Stage two: inside the target, for a while. According to Ms Bullock, inflation was within the target range "for a period in 2024 and 2025". The phrase "for a period" is significant. It signals that the return to target was not sustained.

Stage three: back above 3½ per cent. The latest picture is clear in the RBA's figures. Over the past year, the Governor said, both headline and underlying measures were around or a little above 3½ per cent.

The most recent monthly reading is higher still on a headline basis. The August monthly CPI indicator showed annual headline inflation of 4.0 per cent. Underlying inflation, measured by the trimmed mean, is lower: Ms Bullock said at her 29 September media conference that it has been about 3.5 per cent for the past six months.

It is important not to blur these measures. The 4.0 per cent figure is headline inflation from the monthly indicator. It is not the underlying rate. Both, however, sit above the top of the 2–3 per cent target range.

What pushed inflation back up

The RBA has pointed to a combination of global and domestic forces. In her parliamentary statement, Ms Bullock said: "The Middle East conflict, the AI boom and extreme weather events are contributing to upward pressure on a range of energy, agricultural and technology-related prices."

The Monetary Policy Board's 29 September statement added detail:

  • "The conflict in the Middle East has broadened and global energy prices are now much higher than had been assumed in the August forecasts."
  • "Higher fuel prices have partially been passed through to prices of other goods and services."
  • "AI-related demand is driving rapid growth in global prices for technology-related goods."

The statement also said recent data suggest growth and inflation in Australia have been higher than expected.

At her media conference, Ms Bullock ruled out one common suspect. "There is no wage price spiral going on in Australia. Rises in wages are not driving these cost pressures," she said. She also pointed to the supply side, saying productivity is "doing nothing" and that "the supply side of the economy has to grow."

Why the slippage matters

The RBA has flagged a particular risk around expectations. The Board's statement noted that "Short-term measures of inflation expectations remain elevated." Ms Bullock said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions."

Her overall assessment to the parliamentary committee was blunt: "Inflation is too high. We are focused on getting it back down and making sure that it does not become embedded."

Deputy Governor Andrew Hauser gave a sense of how the cumulative effect feels to households. On ABC 7.30 on 8 September, he said the price level in the economy has risen by "10, 15, 20 per cent higher than it should have done". That is a comment on the accumulated level of prices, distinct from the annual inflation rate.

The road back, as the RBA describes it

The RBA's most recent published forecasts, from the August Statement on Monetary Policy, set out an expected path: "Trimmed mean inflation is expected to remain above 3 per cent until mid-2027, before easing to 2.5 per cent by early 2028".

Mr Hauser offered a similar timeframe in his interview: "Inflation is due to be back in target by the end of next year."

Those projections, however, were made before the latest developments. The Board's statement said energy prices are now much higher than the August forecasts assumed, and those forecasts were built on "less than one full cash rate increase by the end of 2026". New forecasts will be published in the November Statement on Monetary Policy on 3 November.

What to watch in the meantime:

  • the next CPI update on 28 October, 23 days after today;
  • the minutes of the September Board meeting on 13 October; and
  • the 3 November decision, with the new forecasts.

The Board has said it "will continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed."

The bottom line

Australia's inflation journey has three stages: a fall from 7.9 per cent at the end of 2022, a period within the 2–3 per cent target in 2024 and 2025, and a move back to around or a little above 3½ per cent over the past year. The August monthly CPI indicator shows headline inflation at 4.0 per cent, with underlying inflation about 3.5 per cent. The RBA attributes the slippage largely to energy, AI-related and weather-driven price pressures rather than wages, and its four rate rises in 2026 are its response.