Key Highlights

  • Headline CPI of 4.0% and trimmed mean inflation of 3.6% remain above the 2–3% target, while unemployment is 4.6% but should be read with caution.
  • Housing prices are falling faster than assumed, fuel costs have exceeded forecasts, and the dollar sits near the level the RBA assumed.
  • With no forward guidance, September CPI on 28 October is the first scheduled checkpoint before the 3 November decision.

With the cash rate at 4.60% and no forward guidance on offer, the Reserve Bank's next steps hinge on how five strands of evidence develop before and after the scheduled 3 November decision.

Governor Michele Bullock has made one thing clear about the path ahead: she will not map it out in advance. "I'm not going to give you forward guidance," she told reporters after the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60% on 29 September 2026. Asked whether the move would be enough, she said: "Will it be enough? I don't know."

That leaves the data to do the talking. The Board's statement and the minutes of its 28–29 September meeting point to a handful of indicators that featured heavily in its thinking. Five stand out: inflation, the labour market, housing, oil and the Australian dollar. What follows explains where each stood as at mid-October and why it matters, without forecasting what the Board will decide.

Inflation and jobs: the core of the mandate

The first signal, inflation, sits at the centre of everything. The statement said "Inflation remains elevated", and the minutes recorded that members judged "inflation remained too high."

Two measures need to be kept distinct. Headline CPI was 4.0% in the year to August 2026, on the monthly measure. Underlying inflation, measured by the trimmed mean, was 3.6% over the year to the June quarter 2026 and 0.8% in that quarter, seasonally adjusted. Bullock said underlying inflation had been "about 3.5 per cent for the past six months", which she described as "a percentage point above our target".

She also offered a benchmark: around 0.6% quarterly inflation is consistent with roughly 2.5% a year, against recent readings of 0.8 and 1. The RBA aims for the 2.5% midpoint of its 2–3% range.

The next data point is the September CPI, scheduled for release on 28 October. The minutes noted that July's monthly CPI was stronger than expected, particularly in market services, a detail that provides context for the new figures.

The second signal is the labour market, which the RBA is reading with care. Unemployment rose to 4.6% in August, alongside higher participation. Bullock noted the rate was up from 3.5% over the past couple of years while over a million jobs were created, and stressed that "a rise in the unemployment rate does not necessarily mean job losses." She added that "the unemployment rate is still quite low historically, and we still think the labour market is a little bit tight."

The minutes carried an important caveat: "considerable caution is warranted when interpreting the current official labour force data." Leading indicators pointed to broadly stable near-term conditions, and some job advertisement measures were strengthening a little.

Labour costs are part of this signal too. The minutes said unit labour cost growth was above a level consistent with the inflation target, driven mainly by weak productivity rather than strong wages. Bullock said "there is no wage price spiral going on in Australia."

For reference, the August Statement on Monetary Policy, with forecasts finalised on 5 August before the September rise, projected the unemployment rate at 4.5% in the December quarter 2026 and 4.6% by mid-2027.

Housing and oil: one cooling, one adding pressure

The third signal, housing, has weakened noticeably. The statement said "housing prices have fallen in most capital cities" and "new housing loans have declined noticeably". The minutes went further, noting established prices had fallen faster than expected and that "the cumulative fall in housing prices is likely to be greater than had been assumed." New housing loan commitments fell sharply, led by investors.

In August, Assistant Governor (Financial Markets) Christopher Kent said national housing prices had been falling about 0.5% a month over the previous three months, with four consecutive monthly falls, though declines were not yet as steep as in 2018–19 or 2022.

The minutes said very few borrowers were in negative equity, and that was likely to remain so even if housing prices fell 20%. The RBA's Financial Aggregates release, scheduled for 11.30 am on 30 October but subject to possible delay, will add to the credit picture.

Oil is the fourth signal, and energy prices are a key upside risk. The statement, in paraphrase, cited broader conflict in the Middle East and higher global energy prices, and warned of higher fuel costs spreading to other goods and services. The minutes recorded that domestic petrol and diesel prices were 13% higher than forecast in August.

Bullock flagged the risk of persistence: "Disruptions to oil supply could last longer than anticipated". The August forecasts had assumed Brent crude at US$94.9 a barrel for the June quarter 2026, easing to US$81.2 by December 2026 and US$75.9 by June 2027. Those assumptions predate the September decision.

Notably, staff judged the underlying inflation surprise more likely reflected domestic capacity pressures than Middle East cost pass-through. Oil is therefore a risk to watch, but not the main explanation the RBA gave for elevated underlying inflation.

The dollar, and how the pieces fit

The fifth signal is the Australian dollar. The exchange rate influences the price of imported goods. At 4.00 pm on 13 October 2026, the Australian dollar bought US$0.6961, and the trade-weighted index (TWI) stood at 64.7. The minutes noted the dollar was about 5% higher on a trade-weighted basis since the start of the year, having depreciated slightly since the previous meeting.

The August forecasts assumed a TWI of 65.3 from December 2026 onwards, slightly above the 13 October reading. Bullock cautioned against expecting quick effects: "The exchange rate channel takes a while to feed through."

No single indicator will settle the matter. The Board weighed a 25 basis point increase against holding in September, with arguments for holding centred on downside risks to activity, which members judged modest. The minutes said developments "pointed to an increase in the risk of persistently elevated inflation", and the strategy is to return inflation to target "in a timely manner", considering "increasing the cash rate target further if required."

Bullock has said the full effect of rate changes takes 12 to 18 months, which means today's data reflect only part of the tightening already delivered. The next cash rate decision is scheduled for 2.30 pm on 3 November 2026.

The bottom line

Inflation, jobs, housing, oil and the dollar together frame the evidence the Board has highlighted. Headline CPI of 4.0% and trimmed mean inflation of 3.6% remain above the 2–3% target, unemployment is 4.6% but read with caution, housing prices are falling faster than assumed, fuel costs have exceeded forecasts and the dollar sits near the RBA's assumed level. With no forward guidance, how these signals evolve, starting with September CPI on 28 October, will inform the decision on 3 November.