Key Highlights

  • Automotive fuel rose 23.6 per cent over the year to September and 9.4 per cent in the month, driven by higher world oil prices.
  • The Transport group, which includes fuel, rose 8.7 per cent annually, while headline CPI was 4.3 per cent.
  • The RBA has said energy prices are much higher than it assumed in August.

Petrol and diesel costs rose faster than any other major item in the September Consumer Price Index, carrying an overseas oil shock straight into Australian household budgets.

Drivers did not need the Australian Bureau of Statistics to tell them fuel had become more expensive. But the scale of the increase, published on 28 October 2026 in the September Consumer Price Index, is striking: automotive fuel prices rose 23.6 per cent over the 12 months to September, and 9.4 per cent in the month of September alone. The ABS attributed the rise to higher world oil prices.

That single category goes a long way to explaining why annual headline inflation climbed to 4.3 per cent in September, from 4.0 per cent in August. It also illustrates one of the two challenges the Reserve Bank has identified for the economy, and why the RBA treats a global price shock with a mixture of caution and concern.

How big the fuel effect was

To put the numbers in perspective:

  • Automotive fuel: up 23.6 per cent annually and 9.4 per cent in September.
  • Transport group (which includes fuel): up 8.7 per cent annually.
  • Headline CPI: up 4.3 per cent annually, and 0.8 per cent in the month in original terms (0.6 per cent seasonally adjusted).

By comparison, the trimmed mean, the underlying measure, rose 0.3 per cent in the month (seasonally adjusted) and 3.6 per cent over the year. The gap between those measures tells part of the fuel story. The trimmed mean removes the largest price movements in each period, so a spike in petrol lifts headline CPI but has less effect on the underlying figure.

Likewise, CPI excluding volatile items, which strips out automotive fuel along with fruit and vegetables, came in at 3.7 per cent, well below the 4.3 per cent headline rate.

Where the oil shock is coming from

The RBA has been explicit about the source. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that global cost pressures are linked to the Middle East conflict, alongside AI-related demand and extreme weather. She said the Middle East conflict has re-escalated.

She also told senators: "global energy prices are now much higher than had been assumed in the August forecasts". The same phrase appeared in the Monetary Policy Board's statement of 29 September, when the Board raised the cash rate target by 25 basis points to 4.60 per cent.

The consequence, in the Governor's words: "Inflation will therefore likely be higher than was our base case in August." The August Statement on Monetary Policy had already projected inflation returning to the midpoint of the target range only in late 2027, with risks skewed to the upside.

Assistant Governor (Economic) Sarah Hunter addressed the oil issue on 60 Minutes, in an interview recorded on 21 October and broadcast on 25 October, before the September CPI was released. She described the RBA as facing two challenges: an overseas oil shock, and excess domestic demand relative to sustainable supply.

She said oil-driven price pressure is still coming through, and that things will get "a little bit" worse before they improve. She declined to signal what the Board would do next.

That warning matters because the first-round effect of an oil price rise, at the petrol pump, is only part of the story. Fuel is an input to transport, freight and many businesses' costs, so higher oil prices can feed into other prices over time. That is one reason the RBA watches underlying measures alongside the headline figure.

Why a global shock still concerns the RBA

Central banks often describe an imported oil shock as something they cannot directly control. Interest rates do not change world oil prices. So why does the RBA treat it as a policy issue?

The answer lies in expectations and in the domestic backdrop. The Governor told senators that short-term inflation expectations are elevated. At her 29 September media conference, she said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

If households and businesses come to expect high inflation, they may build it into wages and prices, making it more persistent. And the oil shock is arriving in an economy where, as the Governor said in September, "Inflation is too high and has been driven by domestic capacity pressures." Low productivity growth, she told senators, means the economy cannot grow rapidly without adding to inflation pressure.

That combination, an external price shock on top of domestic pressure, is part of why the Board raised rates in September and has said it remains open to "increasing the cash rate target further if needed".

The household squeeze

Fuel costs are among the most visible prices households face, showing up every time a tank is filled. The Governor acknowledged the broader squeeze on 29 September: "Pay packets don't go as far as they used to, and that's why we need to stop this high inflation." She also said: "high inflation hurts all Australians, especially the most vulnerable."

The fuel spike comes alongside other cost increases in the September CPI, including a 12.8 per cent annual rise in electricity, mainly because Commonwealth electricity rebates ended. Goods prices overall rose 4.6 per cent over the year, and services 4.1 per cent.

The bottom line

A 23.6 per cent annual rise in automotive fuel prices, driven by higher world oil prices, was a major reason headline inflation reached 4.3 per cent in September. The underlying trimmed mean, at 3.6 per cent, was far less affected, but it too remains above the 2–3 per cent target. The RBA has said energy prices are much higher than it assumed in August and Sarah Hunter has warned the pressure has not fully passed through. How the Board weighs that will become clear when it announces its decision, alongside a new Statement on Monetary Policy, at 2.30 pm (AEDT) on 3 November. That decision has not yet been made.