The trimmed mean strips out the biggest price rises and falls each period to show the underlying trend in inflation, and it sits at the centre of the RBA's forecasts and commentary.

Think of a judging panel at a sporting event that throws out the highest and lowest scores before averaging the rest. The idea is to stop one unusually generous or harsh judge from distorting the result. The trimmed mean applies a similar logic to consumer prices.

It is one of the most quoted numbers in Australian monetary policy, yet it rarely gets explained. With headline and underlying inflation telling slightly different stories in 2026, it is worth understanding what the trimmed mean is, where it stands, and how the RBA uses it.

How it works

The consumer price index (CPI) tracks the prices of a broad basket of goods and services. The headline, or "all groups", CPI captures every item in that basket. That makes it the most complete measure of what households pay, but it also means a sharp move in a handful of items, such as a spike in fuel prices or a one-off change in a government charge, can push the overall figure around.

The trimmed mean takes a different approach. In each period, it excludes the largest price rises and the largest price falls and averages what is left. The aim is to show the underlying trend in inflation, the part that is broad-based and more likely to persist, rather than temporary swings.

The RBA publishes several measures side by side. For the June quarter 2026, year-ended figures were:

  • Headline CPI: 3.9 per cent
  • Trimmed mean: 3.6 per cent
  • Weighted median: 3.6 per cent
  • CPI excluding volatile items: 4.0 per cent

The weighted median is another underlying measure that, in broad terms, looks at the price change in the middle of the distribution. In the June quarter, it matched the trimmed mean.

Headline and underlying measures are not the same thing, and the distinction matters because the two are often reported together and can be easily confused. The most recent monthly headline CPI reading was 4.0 per cent over the year to August 2026. That is a headline figure. It is not underlying inflation, which on the trimmed mean measure was 3.6 per cent over the year to the June quarter.

Both measures are above the RBA's target of 2 to 3 per cent, with a midpoint of 2.5 per cent. The difference is in what they are designed to show. Headline CPI reflects the full cost-of-living experience, including volatile items. The trimmed mean tries to filter those out to reveal the more persistent trend.

Governor Michele Bullock used the underlying concept at her September media conference, saying underlying inflation had been about 3.5 per cent over the past six months.

How the RBA uses it in forecasts

The RBA's August 2026 Statement on Monetary Policy, with forecasts finalised on 5 August, projected both headline and trimmed mean inflation. The trimmed mean path was:

  • 3.6 per cent in June 2026
  • 3.3 per cent in December 2026
  • 3.0 per cent in June 2027
  • 2.6 per cent in December 2027
  • 2.4 per cent in June and December 2028

The Statement said underlying inflation was expected to decline "to the midpoint of the 2–3 per cent target range in 2028". By comparison, headline CPI was forecast to return to the 2–3 per cent range by early 2027, and to sit at or a little below the midpoint through 2028.

The minutes of the September meeting show how closely the Board tracks the underlying trend. Staff expected underlying inflation in the September quarter to be higher than had been forecast in August, after July inflation data proved stronger than expected, particularly in market services.

Quarterly versus annual: why small numbers matter

Underlying inflation is often discussed in quarterly terms, and small differences add up. Bullock said quarterly inflation of about 0.6 per cent is consistent with about 2.5 per cent annual inflation, contrasting that with quarterly readings of 0.8 and 1 per cent.

As an illustration of the arithmetic (not an RBA calculation), compounding a steady quarterly rate over four quarters gives:

  • 0.6 per cent a quarter: about 2.4 per cent a year
  • 0.8 per cent a quarter: about 3.2 per cent a year
  • 1.0 per cent a quarter: about 4.1 per cent a year

The gap between 0.6 and 0.8 per cent in a single quarter looks tiny, but sustained over a year it is the difference between inflation near the middle of the target range and inflation above it.

Why breadth is the other half of the story

The trimmed mean is designed to look past outliers, but the RBA also pays attention to how widespread price rises are. The September minutes noted that the share of items with prices rising by more than 2½ per cent was "well above average". In general terms, when price increases are broad, trimming the extremes removes less of the pressure, so underlying measures would be expected to stay elevated.

Staff also judged that the upside surprise in inflation more likely reflected domestic capacity pressures than the pass-through of Middle East cost shocks. Bullock said: "Inflation is too high and has been driven by domestic capacity pressures."

Those underlying pressures formed part of the backdrop to the Board's unanimous decision on 29 September to raise the cash rate target by 25 basis points to 4.60 per cent. The decision statement said: "The Board remains focused on ensuring that high inflation does not become embedded."

The bottom line

The trimmed mean removes the largest price rises and falls each period to reveal the underlying trend in inflation. It stood at 3.6 per cent over the year to the June quarter 2026, below the 3.9 per cent headline figure for the same quarter and distinct from the 4.0 per cent monthly headline reading for August. The RBA's August forecasts had it easing to the 2.5 per cent midpoint in 2028, though staff now expect a higher-than-forecast September-quarter result. The next CPI update is listed for 28 October. For anyone weighing what these numbers mean for personal finances, a licensed professional can provide tailored advice.