Australia's two most-watched Inflation measures tell slightly different stories, and understanding the gap between them is key to understanding why the RBA raised rates again.

Ask how high inflation is in Australia right now and there are two honest answers. One is 4.3%. The other is 3.7%. Both come from the Consumer Price Index, both are cited by the Reserve Bank, and both were in the background when the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.85% on 3 November 2026.

The decision, effective 4 November, was the fifth rise of 2026 and was carried six votes to three, with three members preferring to hold at 4.60%. So which number mattered more? The short answer is that the Board looked at both — but the language in its statement points to the underlying measure as the bigger concern.

Two numbers, two jobs

Headline CPI: 4.3%. This is the monthly CPI measure, year-ended, for September 2026. It captures price changes across the whole basket of goods and services households buy, including volatile items such as fuel. It has been climbing: 3.5% in July, 4.0% in August and 4.3% in September.

Trimmed mean: 3.7%. This is the RBA's preferred measure of underlying inflation, year-ended for the September quarter 2026. It removes the items with the most extreme price movements in each period to show the broad trend. In the September quarter alone, the trimmed mean rose 1.0% on a seasonally adjusted basis.

The two figures cover different periods and are calculated differently, so they should never be used interchangeably. Headline inflation tells households what is happening to the overall cost of living. The trimmed mean tells the Central Bank how widespread and persistent price pressures are.

Why headline is higher right now

Because they cover different periods, the two figures are not a precise like-for-like comparison. Still, fuel is the obvious example of a volatile item that can lift headline inflation above the underlying trend. The decision statement points to higher fuel and Commodity prices stemming from the conflict in the Middle East as one driver of inflation. Minutes from the September meeting noted domestic petrol and diesel prices were 13% above the August forecasts.

Assistant Governor (Financial Markets) Christopher Kent made a pointed observation about fuel at a CBA conference on 19 October: "Australians don't pay US dollars at the pump for their oil prices. They pay Aussie dollars." His point was that the Exchange Rate matters for what Australians pay. The trade-weighted Australian dollar had risen about 5% year-to-date, according to the September minutes, and a stronger dollar lowers the local-currency cost of a given US-dollar oil price. Kent added: "One source of resilience has been the access to global oil stocks, and that's provided a real buffer."

Why underlying inflation is the bigger worry

If headline inflation were high only because of fuel, the Board might have had more scope to wait. Energy shocks can fade, and the RBA's November Statement on Monetary Policy (SMP) assumes energy prices decline from their elevated levels.

But the decision statement makes clear the problem is wider: "Inflation remains elevated and recent data indicate that it is broadly based." A trimmed mean of 3.7% — well above the 2–3% target band — is the clearest statistical evidence of that breadth. The Board also cited capacity pressures and AI-related Investment pushing up technology goods prices.

The SMP forecasts reinforce the point. Headline inflation is forecast to reach 4.5% in December 2026 before falling to 2.7% by December 2027. The trimmed mean is forecast to fall more slowly, from 3.6% in December 2026 to 3.5% in June 2027 and 2.9% by December 2027. In other words, the RBA expects the headline spike to unwind faster than underlying inflation — and it is the underlying measure that determines when inflation is genuinely back under control. These are forecasts, and the outcomes could differ.

Where the two measures meet: expectations

The headline number still matters to the Board, for a reason that goes beyond the arithmetic. People experience headline inflation directly at the petrol station and the supermarket. If they see high headline inflation for long enough, they may come to expect it to continue, and adjust their behaviour.

The decision statement warned that "there is an increasing risk that higher inflation expectations will become embedded", noting that some measures of expectations have risen lately. Deputy Governor Andrew Hauser said on 21 October that a rising share of firms see 3–3.5% inflation as the "new normal". He added: "We can't allow expectations to shift away from the target."

So the two measures work together in the Board's thinking:

  • a high trimmed mean shows that inflation pressure is broad and persistent
  • a high and rising headline rate increases the risk that expectations drift upward.

Governor Michele Bullock summarised the recent range in her opening statement to the Senate Economics Legislation Committee on 28 October: "Recently, inflation has been around 3½ to 4 per cent in year-ended terms." She added: "Because of both these factors, inflation is likely to remain elevated for some time."

The next monthly CPI update is due on 25 November 2026, two weeks before the Board's final meeting of the year on 8 December. When it arrives, it will be worth checking which measure is moving. A rise in headline inflation driven by fuel would carry a different message from a broad lift in underlying price pressure. The Board has said only that it "will continue to do what it considers necessary to bring inflation sustainably back to target."

The bottom line

Headline inflation of 4.3% and trimmed mean inflation of 3.7% measure different things, and neither alone explains the decision. Headline is higher mainly because of volatile items such as fuel, while the trimmed mean shows price pressures are spread across the economy. The Board's statement emphasised that inflation is "broadly based" — a description that rests on the underlying measure — while its concern about embedded expectations links back to what households see in the headline rate. Readers trying to work out how inflation and rates affect them can consider speaking with a licensed adviser or their lender.