Key Highlights

  • Trimmed mean Inflation was 3.7% over the year to the September quarter.
  • It strips out the most volatile price movements, giving a steadier underlying signal.
  • Headline inflation was 3.9% over the same period.
  • The RBA expects underlying inflation to ease only slowly through 2027.

While headline inflation is forecast to rise and then fall sharply, the Reserve Bank's preferred underlying gauge barely moves over the next eight months, and that persistence sits at the centre of the policy debate.

Ask most people about inflation and they will think of the headline number: the overall change in consumer prices. The Reserve Bank of Australia (RBA) watches that closely too, but when it wants to understand the underlying trend, it pays particular attention to the trimmed mean. On the RBA's November 2026 forecasts, that measure is expected to be 3.5 per cent over the year to June 2027, only marginally lower than the 3.7 per cent recorded over the year to the September 2026 quarter.

That is the "stubborn core" of the current inflation story.

What is the trimmed mean?

The trimmed mean is a way of looking past the most extreme price movements in any given period. Rather than averaging every price change in the CPI basket, it sets aside the items with the very largest increases and the very largest decreases, then averages what remains. The aim is a cleaner signal of broad-based price pressure.

That makes it a useful counterweight to headline inflation at a time like this. According to the November 2026 Statement on Monetary Policy (SMP) Overview, "Headline inflation was 3.9 per cent over the year to the September quarter and trimmed mean inflation was 3.7 per cent." Both figures are quarterly measures. They should not be confused with the monthly CPI indicator, which showed annual headline inflation of 4.3 per cent for the September month of 2026.

The forecast path, side by side

The contrast between the two measures becomes clear when the November forecasts are laid out together (year-ended, per cent):

  • December 2026: headline 4.5, trimmed mean 3.6
  • June 2027: headline 3.7, trimmed mean 3.5
  • December 2027: headline 2.7, trimmed mean 2.9
  • June 2028: headline 2.5, trimmed mean 2.5
  • December 2028: headline 2.4, trimmed mean 2.4

Headline inflation is forecast to jump to a peak of 4.5 per cent in the December 2026 quarter and then fall away. The trimmed mean, by contrast, drifts from 3.7 per cent to 3.6 per cent and then 3.5 per cent, a decline of just 0.2 percentage points across three quarters. Only in the second half of 2027 does it fall more noticeably, to 2.9 per cent by December.

Interestingly, by December 2027 the trimmed mean is forecast to be higher than headline inflation. That reflects the expected fading of the energy effect on headline prices, while underlying pressures take longer to unwind.

How much the core forecast has shifted

The persistence is also visible in how the forecasts have changed since August. The trimmed mean forecast for June 2027 has been revised up to 3.5 per cent from 3.0 per cent. December 2026 moved from 3.3 per cent to 3.6 per cent, and December 2027 from 2.6 per cent to 2.9 per cent.

The SMP Overview captures the combined picture: "Headline and trimmed mean inflation are now expected to remain above 3 per cent until end-2027".

Part of the headline revision is linked to energy. The Outlook notes "The assumed oil price in the December quarter is 35 per cent higher than assumed in August". But because the trimmed mean is designed to look past large individual price moves, the upward revision to underlying inflation suggests the RBA sees pressure that extends beyond fuel.

Why the Board worries about a stubborn core

Governor Michele Bullock made the distinction explicit at her media conference on 3 November, after the Board raised the cash rate target by 25 basis points to 4.85 per cent: "we are not tightening monetary policy because of the direct impact of oil prices on inflation."

The concern, she said, is about expectations. "It is critical that we stop expectations for high inflation from becoming embedded in price-setting decisions". A sticky trimmed mean is precisely the kind of signal that could indicate such embedding is under way: when underlying inflation stays elevated for an extended period, businesses may come to set prices, and workers may negotiate pay, on the assumption that elevated inflation will continue.

Deputy Governor Andrew Hauser's lecture on 5 November provided some evidence on how expectations can shape behaviour. He cited a Macquarie University Business survey which found that firms expecting a faster return to target planned to pass on less of their Middle East conflict-related costs. If that relationship holds more broadly, confidence in the RBA's ability to bring inflation down could itself help the core ease.

The Board's own statement framed its approach in general terms: "The Board will continue to do what it considers necessary to bring inflation sustainably back to target." The word "sustainably" is significant. A fall in headline inflation driven by fading energy prices would not, on its own, demonstrate that inflation had returned to target in a lasting way. The trimmed mean is one of the measures that would help show whether it had.

The forces that could move the core

The forecasts show the economy slowing and the labour market softening over the same period. GDP growth is projected at 1.6 per cent over the year to June 2027, and the Unemployment rate is forecast at 4.8 per cent by then, up from an average of 4.6 per cent in the September 2026 quarter. A gradually looser labour market is one channel through which underlying inflation might ease over time.

The next opportunities to test the forecasts arrive soon: the October monthly CPI indicator on 25 November and the minutes of the November Board meeting on 17 November, ahead of the 8 December decision.

The bottom line

The trimmed mean was 3.7 per cent over the year to the September quarter and is forecast to be 3.5 per cent by June 2027, up from the 3.0 per cent the RBA expected in August. That slow descent, rather than the more dramatic rise and fall of headline inflation, is what the Board appears most focused on. A persistent core is harder to dismiss as a temporary shock and is closely tied to the RBA's concern that high inflation expectations could become embedded.