Key Highlights

  • The trimmed mean rose to 3.6 per cent from a revised 3.5 per cent, while headline CPI reached 4.3 per cent.
  • The trimmed mean looks through the sharpest price moves, such as fuel and electricity, giving a clearer read on the broad trend.
  • CPI excluding volatile items was 3.7 per cent, and all measures are above the RBA's 2–3 per cent target.

Headline inflation grabbed attention at 4.3 per cent, but the underlying trimmed mean measure, which strips out extreme price swings, is the figure many economists watch most closely.

Every inflation release produces a headline number, and September's was eye-catching: consumer prices rose 4.3 per cent over the year, according to the Australian Bureau of Statistics. But tucked beneath it was a quieter figure that tells a different, and arguably more important, story about price pressure in the economy.

The trimmed mean, the ABS's underlying measure of inflation, rose 3.6 per cent over the 12 months to September 2026. That was up from a revised 3.5 per cent in August. In the month of September, it rose 0.3 per cent in seasonally adjusted terms.

Understanding what the trimmed mean is, and why it moves differently from headline CPI, helps make sense of how the Reserve Bank reads the inflation data ahead of its 3 November decision.

What the trimmed mean measures

Headline CPI captures the price change of the entire basket of goods and services households buy. That makes it the most complete measure, but also the most exposed to sharp, temporary swings in individual items.

The trimmed mean takes a different approach. In each period, it sets aside the items with the most extreme price movements, both up and down, and calculates inflation from the remainder. The idea is to get a clearer view of the broad trend in prices, less distorted by one-off shocks.

That distinction is not cosmetic. It means:

  • Headline CPI (4.3 per cent) reflects everything, including big moves in fuel and electricity.
  • Trimmed mean (3.6 per cent) reflects the underlying trend once the most extreme moves are trimmed away.
  • CPI excluding volatile items (3.7 per cent) is a third gauge, which removes specific categories, fruit and vegetables and automotive fuel, rather than whichever items move most.

Why September's two measures diverged

The gap between 4.3 per cent and 3.6 per cent largely reflects the sharp price rises the trimmed mean is designed to look through. Automotive fuel rose 23.6 per cent over the year to September and 9.4 per cent in the month, driven by higher world oil prices. Electricity rose 12.8 per cent over the year, mainly because Commonwealth electricity rebates ended.

The monthly figures show the same pattern. Headline CPI rose 0.8 per cent in September in original terms and 0.6 per cent seasonally adjusted, while the trimmed mean rose 0.3 per cent.

One technical detail in the release is also worth noting, because it changes how the September result compares with the month before. The ABS revised the August trimmed mean down from 3.6 per cent to 3.5 per cent, because of a change in seasonal factors. As a result, the September reading of 3.6 per cent represents an increase on the revised August figure, rather than a steady result.

The ABS also notes that the monthly CPI is now the complete measure of consumer prices, with quarterly data presented separately.

Why the Board pays close attention

The Reserve Bank's target is inflation of 2–3 per cent, with the 2.5 per cent midpoint as reference. Headline inflation is what households experience, and the RBA does not dismiss it. But underlying measures help the Board judge whether price pressures are broad and persistent, which is what monetary policy is best placed to influence.

Governor Michele Bullock's recent remarks highlight why persistence is the concern. At her 29 September media conference she said: "Inflation is too high and has been driven by domestic capacity pressures." In her opening statement to the Senate Economics Legislation Committee on 28 October, she said: "we still see inflation arising from domestic capacity pressures."

Domestic pressure of that kind tends to show up in underlying measures and in services prices, rather than only in volatile items such as fuel. Services prices rose 4.1 per cent over the year to September. Goods prices rose 4.6 per cent.

The Governor also told senators that "Recently, inflation has been around 3½ to 4 per cent in year-ended terms." The September trimmed mean of 3.6 per cent sits within that range, but remains well above the top of the target band.

A measure with forward-looking weight

The trimmed mean is not immune to energy prices. If higher fuel and energy costs feed through to transport, freight and other business costs over time, they can broaden into underlying inflation. Assistant Governor (Economic) Sarah Hunter warned on 60 Minutes, broadcast on 25 October, that oil-driven price pressure is still coming through and that things will get "a little bit" worse before they improve.

The Governor told senators that "Inflation will therefore likely be higher than was our base case in August," and that short-term inflation expectations are elevated. The August Statement on Monetary Policy had projected inflation returning to the midpoint only in late 2027, with risks skewed to the upside.

The Board's September statement said "Inflation remains elevated and some of the upside risks flagged in August are materialising." The Board raised the cash rate target to 4.60 per cent that day, the fourth increase this year, and said it remained open to "increasing the cash rate target further if needed". It has not made its 3 November decision, and the Governor has said: "I'm not going to give you forward guidance."

The bottom line

The trimmed mean rose to 3.6 per cent in the year to September, up from a revised 3.5 per cent, while headline CPI reached 4.3 per cent. The underlying measure is lower because it looks through the sharpest price moves, such as fuel and electricity, giving a clearer read on the broad trend that interest rates are designed to influence. It is still above the RBA's 2–3 per cent target and moving in the wrong direction. The Board will consider it alongside headline inflation and new forecasts when it announces its decision at 2.30 pm (AEDT) on 3 November.