Headline Inflation grabs attention, but the RBA's forecast that trimmed mean inflation will sit at 3.6% through 2026 may be the more telling signal behind its latest rate rise.

Fuel prices swing. Holiday airfares jump and fall. Fruit and vegetable prices shift with the weather. A Central Bank that reacted to every one of those movements would be setting policy on noise. That is why the Reserve Bank pays such close attention to the trimmed mean, its preferred measure of underlying inflation — and why the November 2026 forecasts for that measure deserve a careful look.

On 3 November 2026, the Monetary Policy Board raised the cash rate target by 25 basis points to 4.85%, effective 4 November. The decision was split six to three, with three members preferring to hold at 4.60%. The Statement on Monetary Policy (SMP) released the same afternoon shows underlying inflation running well above target and barely moving for most of the next year.

What the trimmed mean measures

The trimmed mean is calculated by removing the items with the largest price rises and the largest price falls in a period, then averaging what remains. The aim is to filter out one-off shocks and reveal the persistent pressure on prices across the economy.

The latest outcome was 3.7% year-ended in the September quarter 2026, and 1.0% in the quarter itself on a seasonally adjusted basis.

That is a different figure from headline inflation. Monthly headline CPI was 4.3% year-ended in September 2026, up from 4.0% in August and 3.5% in July. Headline includes the volatile items the trimmed mean excludes, so the two should not be confused.

Forecasts that barely budge

The November SMP's trimmed mean forecasts (year-ended, with August forecasts in brackets) show how sticky the RBA expects underlying inflation to be:

  • June 2026: 3.6% (3.6%)
  • December 2026: 3.6% (3.3%)
  • June 2027: 3.5% (3.0%)
  • December 2027: 2.9% (2.6%)
  • June 2028: 2.5% (2.4%)
  • December 2028: 2.4% (2.4%)

The striking feature is the plateau. On the table's figures, the measure sits at 3.6% for June 2026 and is still forecast at 3.6% for December 2026 and 3.5% for June 2027. In August, the RBA had expected it to be falling steadily, reaching 3.0% by mid-2027. The November path shows almost no progress over the coming year, before a more meaningful decline in the second half of 2027.

These are forecasts, conditioned on assumptions including a market-based cash rate path and an energy price assumption. They could prove too high or too low.

Why the core measure carries extra weight now

Headline inflation can be pushed around by an external shock such as an oil price spike, and central banks sometimes judge that such shocks will fade on their own. Underlying inflation is harder to dismiss. When it stays high, it suggests price pressure is spread across many parts of the economy rather than concentrated in a few items.

That is exactly the message in the decision statement: "Inflation remains elevated and recent data indicate that it is broadly based."

Several features of the economy help explain why the core measure is so persistent:

  • Excess demand. The SMP states: "The economy is currently operating with excess Demand and is judged to reach balance next year". Minutes of the September meeting recorded that "Members expressed their concern that excess demand was greater than previously assessed."
  • A tighter labour market than thought. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "the labour market seems a little tighter than we had previously judged."
  • Gradual moderation in spending. Bullock also said: "Household spending growth has been moderating only gradually."
  • Weaker productivity. Deputy Governor Andrew Hauser said on 21 October that the RBA had cut its underlying productivity growth assumption from 1% to 0.7%, reducing the economy's capacity to grow without adding to price pressure.

The expectations problem

The deeper worry is what persistent underlying inflation might do to behaviour. If people come to expect inflation of 3.5% rather than 2.5%, they may build that into wage claims, price lists and contracts, making it self-reinforcing.

The decision statement warned that "there is an increasing risk that higher inflation expectations will become embedded", and noted that some measures of expectations have risen lately. Hauser reported a rising share of firms seeing 3–3.5% inflation as the "new normal", and said: "We can't allow expectations to shift away from the target."

On wages specifically, the evidence so far is more reassuring. Monetary Policy Board member Iain Ross AO, in a 22 September speech titled "A Wage-price Spiral: What are the Chances?", concluded that "there is little evidence that a self-sustaining Wage-Price Spiral has emerged following the latest inflationary episode." He pointed to structural differences from the 1970s, including union membership of 13% today compared with slightly over half in the late 1970s.

That distinction matters. Underlying inflation can be persistent without a wage-price spiral; the Board's concern is that a long period of elevated Core Inflation raises the odds of one developing.

With the trimmed mean forecast to remain around 3.5–3.6% for the next year, the decision statement says inflation is not expected to reach the top of the 2–3% range until then, about three quarters later than previously forecast.

The Board's closing commitment was firm: "The Board will continue to do what it considers necessary to bring inflation sustainably back to target." It did not signal a specific path. The next monthly CPI release is on 25 November 2026, and the next decision is due at 2.30 pm on 8 December.

The bottom line

The headline inflation forecast of 4.5% for December 2026 may draw the headlines, but the trimmed mean forecast is where the Board's concern is most visible. Underlying inflation was 3.7% in the September quarter and is forecast to sit at 3.6% at the end of 2026 and 3.5% in mid-2027, with little improvement for a year. That persistence, combined with signs of rising expectations, helps explain why the Board chose to tighten again. As always, the forecasts may change as new data arrive. Readers considering what this means for them can consider speaking with a licensed adviser or their lender.