The Monetary Policy Board said recent inflation outcomes were "stronger than expected at the previous meeting" – a surprise that helps explain the September rate rise to 4.60%.

4.35%. 3.9%. 3.6%. 4.0%. 4.60%.

Those five numbers trace the path from the Reserve Bank of Australia's August forecasts to its September decision to raise rates. The first is the cash rate that applied when the RBA published its August Statement on Monetary Policy. The second and third are the June-quarter headline and trimmed mean inflation rates it was working with. The fourth is the headline inflation rate from the monthly CPI indicator for August. The last is where the cash rate target stands today, after the Monetary Policy Board's unanimous 25 basis point increase announced on 29 September 2026 and effective 30 September.

What connects them is a single line in the Board's statement: "recent inflation outcomes in Australia were stronger than expected at the previous meeting".

How the picture looked in August

The August Statement on Monetary Policy, published on 11 August 2026, set out the RBA's view of the economy at that point. With the cash rate at 4.35%, the RBA reported that:

  • Headline CPI inflation in the June quarter 2026 was 3.9% over the year, having "declined slightly".
  • Trimmed mean inflation, a measure of underlying inflation, was 3.6% over the year and "remained high".
  • Both headline and trimmed mean inflation were "expected to remain elevated in the near term".
  • Trimmed mean inflation was forecast to reach the 2.5% midpoint of the target band by early 2028.
  • The labour market was assessed as "still ... a little tighter than full employment".

That forecast path implied a long but steady return to target. It also depended on assumptions – about energy prices, demand, costs and more – that would be tested by the data arriving over the following weeks.

What changed between meetings

By the time the Board met in late September, the data had come in hotter than anticipated. The statement said "inflation remains elevated" and that recent outcomes were stronger than expected.

The monthly CPI indicator showed headline inflation of 4.0% over the year to August 2026. It is worth being careful when comparing that with the June-quarter figure of 3.9%. The monthly indicator and the quarterly CPI are different releases with different coverage and timing, so the two numbers are not a like-for-like comparison. Even so, both sit well above the 2–3% target.

On underlying inflation, Governor Michele Bullock told her media conference that "the underlying inflation rate's been about 3.5 per cent for the past six months". That is a different framing from the year-ended June-quarter trimmed mean of 3.6%, but it conveys the same message: underlying price growth is running at a pace well above the 2.5% midpoint.

The external backdrop also shifted. The Board said the Middle East conflict has "broadened" and that global energy prices are "now much higher" than at the time of the August forecasts. It said "global oil supply disruptions are maintaining upward pressure" and that "AI-related demand is driving rapid growth in global prices for technology-related goods".

Domestically, "Firms are experiencing cost pressures" and are increasing or planning to increase prices, while the statement pointed to "pressure on domestic capacity". The Governor added: "Domestic spending and investment have been stronger than expected."

Her summary of the shift: "Inflationary pressures will persist for longer than previously expected."

Why a forecast miss can move rates

Central banks set policy with an eye to the future, because interest rate changes take time to affect the economy. That means they lean heavily on forecasts. When actual inflation comes in above forecast, it can signal that the path back to target is longer or bumpier than planned – and that the existing policy setting may not be restrictive enough to deliver the intended result.

A single surprise does not automatically trigger a rate change. But when upside surprises coincide with rising energy prices, strong demand and firms planning further price increases, the case for acting strengthens. The Board's particular concern is persistence: it said high inflation must not become "embedded", and the Governor said: "It's critical that we stop expectations for high inflation from becoming embedded."

This is why the August forecasts need to be read with a caveat. They were prepared when the cash rate was 4.35%, before the September increase, and before the further rise in energy prices the Board has since described. The early-2028 timeline for reaching 2.5% was the RBA's view at that time; the Board's September statement suggests the balance of risks has since moved.

The statement also acknowledged "heightened uncertainties", with the Middle East conflict "unresolved" and scenarios in which inflation could be higher and activity lower than forecast.

What comes next

The Board's forward guidance makes clear that further surprises could prompt further action. 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 Governor put it more simply: "The Board will increase interest rates again if that's what's needed to get inflation down."

The timing of the next data matters. The next CPI release is due on 28 October 2026, and the Board's next decision is at 2:30 pm AEDT on Tuesday 3 November 2026 – so the Board will have fresh inflation figures in hand when it next meets.

Questions worth considering when those figures arrive include:

  • Is headline inflation still running near 4%, or has it begun to ease?
  • Is underlying inflation continuing at around 3.5%, or moving meaningfully in either direction?
  • Are the outcomes stronger or weaker than the RBA appeared to expect when it raised rates in September?

The bottom line

The September rate rise was, in large part, a response to inflation outrunning the RBA's expectations between meetings. The August forecasts envisaged a gradual return to the 2.5% midpoint by early 2028, but subsequent data and a sharper rise in energy prices changed the picture. With the Board leaving the door open to further increases and new CPI figures due just days before its next decision, the question now is whether the next set of numbers confirms that inflation is easing or delivers another upside surprise.