Key Highlights

  • The August forecasts had headline inflation re-entering the 2–3% target range by Mid-2027, with the sharpest fall expected in the first half of that year.
  • They were finalised before the September rise, assumed a lower cash rate than 4.60%, and assumed oil prices would ease.
  • Higher fuel prices, a stronger-than-expected July CPI and a fourth rate rise mean the projection is being tested against newer data.

The RBA's August forecasts had headline inflation back inside its 2–3% target range by Mid-2027, but higher fuel prices, a hotter-than-expected July CPI and a fourth rate rise for the year mean that projection is now being tested against data that has moved since it was written.

Forecasts are snapshots. The ones in the Reserve Bank of Australia's August 2026 Statement on Monetary Policy (SMP) were finalised on 5 August, before the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60% at its 28–29 September meeting. In the weeks between those two dates, the Board concluded that "some of the upside risks flagged in August are materialising."

That makes the headline inflation path in the August SMP a useful reference point, not because it is the RBA's latest word, but because it shows what the Bank expected before the most recent run of information arrived. This article looks at what that path said, what has changed since, and which scheduled releases will put it to the test.

The path the RBA mapped in August

Headline CPI is the broad measure most Australians recognise, covering the full basket of goods and services, including volatile items such as fuel. In the August SMP, the RBA forecast year-ended headline inflation as follows:

  • 3.9% in the June quarter of 2026
  • 3.6% by December 2026
  • 2.8% by June 2027
  • 2.6% by December 2027
  • 2.4% in both June and December 2028

In the accompanying text, the RBA said headline inflation was forecast to return to the 2–3% range by Mid-2027, and then to be "at or a little below the midpoint of the inflation target throughout 2028." The target's midpoint is 2.5%.

The steepest part of that path falls between December 2026 and June 2027, when headline inflation was forecast to drop by 0.8 percentage points, from 3.6% to 2.8%. That is the stretch that would carry it back into the band.

Two assumptions sat alongside those numbers. The cash rate was assumed to be 4.3% in June 2026, 4.4% in December 2026 and 4.5% through June and December 2027. The Brent crude oil price was assumed to ease from US$94.9 a barrel in the June quarter of 2026 to US$81.2 by December 2026 and US$75.9 by June 2027. The actual cash rate of 4.60% now sits above every point in that cash rate assumption.

What has shifted since 5 August

Several developments since the forecasts were finalised are relevant to the headline path.

First, the latest monthly CPI showed headline inflation at 4.0% over the year to August 2026. That reading comes from the monthly series, so it is not a like-for-like comparison with the quarterly forecasts above, but it shows headline inflation remaining well outside the target range.

Second, the minutes of the September meeting record that domestic petrol and diesel prices were 13% higher than forecast in August. Because headline CPI includes fuel directly, that matters more for this measure than for underlying inflation. Governor Michele Bullock also warned at her media conference that "Disruptions to oil supply could last longer than anticipated".

Third, the minutes say the July monthly CPI was stronger than expected, particularly in market services. The Board's statement noted higher fuel costs spreading to other goods and services, along with risks from a broader Middle East conflict, higher global energy prices and AI-related demand pushing up technology goods prices (all paraphrased from the statement).

Finally, there is the rate rise itself. The September increase was not part of the forecast assumptions. Bullock said the full effect of interest rate changes takes 12 to 18 months, so any influence of the September move on inflation would be expected to build over time rather than show up immediately.

Headline and underlying are on different tracks

It is worth keeping headline and underlying inflation separate. Underlying inflation, measured by the trimmed mean, was 3.6% over the year to the June quarter of 2026. The August SMP forecast it to ease more gradually than headline: 3.3% by December 2026 and 3.0% by June 2027, staying at 3.0% in June 2027.

Put side by side, the forecasts had headline inflation falling faster than underlying inflation over the first half of 2027. Headline inflation is more exposed to energy prices, so it can fall quickly when those prices ease, and stay high when they do not.

Bullock said underlying inflation had been "about 3.5 per cent for the past six months", or "a percentage point above our target". RBA staff judged that the recent underlying surprise more likely reflected domestic capacity pressures than cost pass-through from the Middle East conflict. That suggests the challenge is not only about fuel, even if fuel weighs most heavily on the headline figure.

The scheduled checkpoints

The next official test arrives soon. The September CPI is scheduled for release on 28 October 2026. The RBA's next cash rate decision is scheduled for 2.30 pm on 3 November 2026.

Neither event comes with a pre-announced outcome, and the Governor has been explicit about not signalling one. "I'm not going to give you forward guidance," she said on 29 September. Asked whether the September rise would be enough, she replied: "Will it be enough? I don't know." The Board's statement said it "will continue to do what it considers necessary to bring inflation sustainably back to target".

The bottom line

The RBA's August forecasts had headline inflation re-entering the 2–3% target range by Mid-2027, with the sharpest fall expected in the first half of that year. Those forecasts were finalised before the September rate rise, assumed a lower cash rate than the current 4.60%, and assumed oil prices would ease.

Since then, headline CPI has printed at 4.0% for the year to August, petrol and diesel prices have run 13% above the August forecast, and the Board has said upside risks are materialising. Whether the early-2027 timeline still holds is something the coming CPI releases and Board decisions will help clarify; for now, it is a projection under fresh scrutiny rather than a settled outcome.

The RBA’s August forecasts showed headline inflation at 2.8% in June 2027. June is mid-2027, and the figure is a conditional forecast rather than an observed outcome.