Key Highlights

Goods prices rose 4.6 per cent and services prices 4.1 per cent over the year to September 2026.

Fuel and electricity explain much of the goods side, while services inflation reflects domestic pressures such as labour costs, rents and demand.

The Governor said the Bank still sees inflation arising from domestic capacity pressures.

The September 2026 Consumer Price Index shows both goods and services prices rising well above the Reserve Bank's target band, suggesting no single corner of the economy is responsible for the inflation problem.

Economists like to split the Consumer Price Index (CPI) in two. On one side sit goods: the physical things households buy, from petrol to groceries to household items. On the other sit services: the things people pay others to do or provide, from rental housing to haircuts to insurance. When inflation flares, the split can reveal whether the pressure is coming from imported costs, from domestic demand, or from both.

The Australian Bureau of Statistics (ABS) released its September 2026 CPI on 28 October 2026. It showed goods prices up 4.6 per cent over the 12 months to September and services prices up 4.1 per cent. Neither figure is close to the Reserve Bank of Australia's (RBA) 2–3 per cent target range, and both sit far above the 2.5 per cent midpoint the RBA uses as its reference.

The answer to the "which side?" question, in other words, appears to be both.

The goods and services figures sit beneath a headline CPI that rose 4.3 per cent in the 12 months to September, up from 4.0 per cent in the 12 months to August. Underlying inflation, measured by the trimmed mean, was 3.6 per cent, up from a revised 3.5 per cent. The CPI excluding volatile items, which removes fruit and vegetables and automotive fuel, rose 3.7 per cent.

Headline inflation sitting between the goods and services rates is what one would expect, since it combines the two. What stands out is how narrow the gap is. A 4.6 per cent rise for goods and a 4.1 per cent rise for services means the two halves of the basket are moving at broadly similar, and similarly elevated, speeds.

The goods side: energy and global costs

Some of the largest individual moves in the September data relate to energy. Automotive fuel rose 23.6 per cent over the year and 9.4 per cent in the month of September, which the ABS linked to higher world oil prices. Electricity prices rose 12.8 per cent annually, mainly because Commonwealth electricity rebates ended.

These are the kinds of costs that can move quickly in response to events far from Australia. In her opening statement to the Senate Economics Legislation Committee on 28 October 2026, Governor Michele Bullock pointed to global cost pressures linked to the Middle East conflict, AI-related demand and extreme weather. She also noted that the Middle East conflict has re-escalated.

The RBA's Monetary Policy Board flagged the energy issue in its 29 September decision statement, observing that "global energy prices are now much higher than had been assumed in the August forecasts." Governor Bullock repeated that line to senators and added: "Inflation will therefore likely be higher than was our base case in August."

The services side: a domestic story

Services inflation of 4.1 per cent points to something closer to home. Services are generally produced and consumed locally, so their prices tend to reflect domestic labour costs, rents and the level of local demand.

Housing costs feature here. Rents rose 3.6 per cent over the year and 0.2 per cent in the month. The broader Housing group rose 5.2 per cent annually, and new dwellings were up 4.7 per cent.

The RBA has repeatedly identified domestic demand as a central concern. At the media conference after the September decision, Governor Bullock said on 29 September 2026: "Inflation is too high and has been driven by domestic capacity pressures." She added: "we still think the labour market is a little bit tight."

Assistant Governor (Economic) Sarah Hunter framed the same issue during an interview on 60 Minutes broadcast on 25 October 2026. She described two challenges facing the RBA: an overseas oil shock, and excess domestic demand relative to what the economy can sustainably supply. The goods and services split lines up neatly with that description, with fuel prices reflecting the first challenge and services reflecting the second.

Why both sides matter for policy

If inflation were confined to imported goods such as fuel, there might be an argument that the pressure would fade once global prices settled. If it were confined to services, the focus would be squarely on domestic demand. With both elevated, the picture is harder to dismiss.

Governor Bullock told senators that low productivity growth means the economy cannot grow rapidly without adding to inflation pressure. She also said that household spending growth is moderating only gradually, and that business investment has picked up, mainly in data centres and renewable energy.

On top of this, short-term inflation expectations are elevated, according to the Senate statement. The RBA has made clear why that matters. On 29 September 2026, Governor Bullock said: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

When businesses selling both goods and services expect costs to keep climbing, they may be more inclined to lift their own prices. That is the kind of self-reinforcing cycle central banks generally aim to prevent.

What the RBA has said, and what it hasn't

The Board raised the cash rate target by 25 basis points to 4.60 per cent at its September meeting, effective 30 September 2026. That was the fourth increase of 2026, taking the cumulative rise this year to 100 basis points. The decision was unanimous.

In its statement, the Board said "a further tightening in financial conditions is warranted", while noting its options included "increasing the cash rate target further if needed". It added that it "will be attentive to the data and the evolving assessment of the outlook and risks".

The Board's next decision is due on 3 November 2026 at 2.30 pm AEDT, alongside a new Statement on Monetary Policy containing updated forecasts. That decision has not yet been made. Governor Bullock has been explicit about not pre-empting it, saying on 29 September: "I'm not going to give you forward guidance."

The bottom line

The September CPI shows goods prices rising 4.6 per cent and services prices rising 4.1 per cent over the year. Fuel and electricity explain much of the noise on the goods side, but services inflation reflects pressures that originate inside Australia.

For readers following the RBA, the split is a useful reminder that the Bank is contending with two problems at once: global costs it cannot control and domestic demand it can influence. As Governor Bullock told senators on 28 October 2026: "High inflation hurts everyone." How the Board weighs the latest data will become clear when it announces its decision next week.