Key Highlights

  • The RBA's central forecast has underlying Inflation near 2½ per cent by end-2028.
  • If crude stays around US$100 a barrel, underlying inflation would be around 2¾ per cent.
  • The scenario illustrates risk rather than a forecast.
  • Elevated refined product prices are part of the same scenario.

Forecasts tell you what a Central Bank expects. Scenarios tell you what it worries about. In the November 2026 Statement on Monetary Policy (SMP), the Reserve Bank of Australia (RBA) sets out an energy and expectations scenario in which Crude Oil stays around US$100 a barrel, with refined product prices also remaining elevated. In that world, underlying inflation is around 2¾ per cent by end-2028, rather than about 2½ per cent.

A quarter of a percentage point may sound minor. But it is the difference between inflation sitting at the midpoint of the RBA's 2–3 per cent target and drifting towards the top of it, more than two years from now.

The central case versus the scenario

To see what the scenario changes, start with the baseline. The RBA's central forecasts are built on a Brent Crude assumption that declines steadily:

  • December 2026: US$109.5 a barrel
  • June 2027: US$95.3
  • December 2027: US$86.9
  • December 2028: US$79.1

On that path, the RBA forecasts trimmed-mean (underlying) inflation of 2.5 per cent in June 2028 and 2.4 per cent in December 2028.

The scenario asks what happens if crude stays around US$100 instead of sliding towards about US$79. The answer, according to the SMP, is that underlying inflation would be around 2¾ per cent by end-2028 rather than about 2½ per cent.

Why oil can move underlying inflation

The trimmed mean is designed to strip out the most extreme price changes each quarter, so a fuel price spike on its own does not automatically lift it. The reason a sustained oil price can still matter is persistence and spillover.

When energy stays expensive for a long time, the costs spread. Freight, transport, Manufacturing and services all face higher input costs, which can be passed on gradually across a wide range of goods and services. That makes price rises more broadly based, which is exactly what the trimmed mean is built to capture.

The RBA's label for this scenario, energy and expectations, points to a second channel. If people come to expect high inflation, those expectations can shape wage claims and pricing decisions. The majority of the Monetary Policy Board flagged this concern directly in its 3 November statement: "there is an increasing risk that higher inflation expectations will become embedded."

The SMP does not attach a probability to the scenario, and it is not a forecast. But it is worth noting how the oil assumption itself has already moved. The December quarter 2026 oil price assumption is 35 per cent higher than in August, and the end-2028 assumption is 11 per cent higher. Refined fuel margins are now assumed to return to historical averages by mid-2027, about two quarters later than assumed in August.

The Monetary Policy Board's statement said "The Middle East conflict remains unresolved", and the SMP lists prolonged energy disruption among the upside risks to inflation. The Board also observed that "there are scenarios where inflation is higher and activity lower than forecast."

Against that, the RBA identifies forces that could push inflation down faster than expected. The SMP says inflation could fall more quickly if higher interest rates and falling housing prices weigh on spending. Housing prices have fallen about 5 per cent from their March peak, and the Board's statement noted that "The economy is slowing."

What the scenario says about the path of rates

The central forecasts are built on a cash rate path from market pricing as at 28 October 2026. That pricing implies the cash rate rises about 35 basis points by mid-2027 and then stabilises at 4.8 per cent in 2028. The RBA judges that path to be restrictive, but it is a market assumption rather than an RBA promise.

The scenario does not set out an alternative Interest Rate path, and it would be speculation to say how the Board might respond. What the scenario does show is the size of the gap the Board could face. If underlying inflation were tracking around 2¾ per cent at the end of 2028, it would still be inside the 2–3 per cent band, but not at the midpoint the RBA forecasts in its central case.

The Board has been clear about its intent. Its statement says "The Board will continue to do what it considers necessary to bring inflation sustainably back to target" and that "Monetary policy is well placed to respond to developments".

Other scenarios in the SMP

The oil scenario is one of several the RBA uses to illustrate risks:

  • AI demand. Stronger AI-related Demand could keep global growth and inflation higher and add to domestic capacity and construction cost pressures.
  • Weaker activity. If households and businesses respond more strongly to oil prices, interest rates and falling house prices, GDP would be about 1.0 per cent lower by end-2028 and Unemployment 0.3 percentage points higher, with inflation only modestly lower.
  • Capacity uncertainty. The RBA notes this cuts both ways: pressures may be understated, or labour Supply may prove stronger, pushing unemployment higher.

Taken together, the scenarios explain why the SMP judges domestic inflation risks to be skewed to the upside, while risks to domestic activity are broadly balanced.

The current readings show how far there is to go. Headline CPI rose 4.3 per cent over the year to September 2026 on the monthly measure, and 3.9 per cent over the year to the September quarter. The trimmed mean rose 3.7 per cent over the year to the September quarter, and 1.0 per cent in the quarter itself.

The RBA forecasts headline inflation to peak at 4.5 per cent in the December quarter of 2026, with both headline and underlying inflation above 3 per cent until the end of 2027.

The bottom line

The RBA's energy and expectations scenario shows that if crude oil stays around US$100 a barrel and refined product prices remain high, underlying inflation would be around 2¾ per cent by end-2028, instead of about 2½ per cent in the central forecast. That is still within the target band, but above the midpoint the Bank aims for.

The scenario is an illustration of risk, not a prediction. It highlights why the Board, in raising the cash rate target to 4.85 per cent on a six-to-three vote, pointed to the risk of embedded inflation expectations. The next CPI figures arrive on 25 November 2026, ahead of the Board's 8 December decision.