Inflation explained: what the latest numbers mean for interest rates

29 October 2026
Economy & Markets

Australia’s latest inflation figures have reinforced concerns that price pressures remain too high ahead of the Reserve Bank of Australia’s (RBA) interest rate decision on Tuesday. 

NAB now expects the RBA to raise the cash rate by 25 basis points in November, which would take the cash rate to 4.85%. 

So, what did the latest Consumer Price Index (CPI) show, why does underlying inflation matter and what could it mean for interest rates? 

Inflation remains high across the economy 

The CPI tracks changes in the prices Australians pay for a broad range of goods and services. It captures many of the costs households regularly face, from groceries and transport to rent, household appliances, eating out and entertainment. 

September headline inflation was 4.3% over the year, slightly higher than NAB and consensus expectations of 4.2%. 

Some prices can move sharply from month to month. A good example is fuel, which was a major contributor in September, rising 9.4% during the month. Travel and fruit prices also rose strongly. 

But the latest figures show inflation pressures extend beyond these more volatile categories. 

Almost 60% of the CPI basket is rising at an annualised rate of 3.5% or more based on price changes during the past three months. 

That breadth matters because the RBA is looking for evidence that inflation pressures across the economy are sustainably easing. 

Why underlying inflation matters 

One of the measures closely watched by the RBA is trimmed mean inflation. 

Trimmed mean removes the largest price rises and falls each quarter to provide a clearer indication of underlying inflation pressures. 

In the September quarter, trimmed mean inflation rose 1.0% and was 3.7% higher over the year. The quarterly result was materially stronger than the RBA had forecast in August. 

This is relevant because underlying inflation can provide a better indication of persistent price pressures than individual movements in categories such as fuel, food and travel, that may be experiencing short term impacts. 

While some parts of the latest CPI were more subdued, the broader picture shows inflation remains elevated and widespread. 

Why the outlook has changed 

The latest inflation figures are only one part of the picture facing the RBA. 

NAB Economics also points to recent RBA commentary suggesting the labour market may be tighter than the central bank previously judged. 

That is important because a tighter labour market can make it harder for domestic inflation pressures to ease. 

Higher energy costs and persistent price pressures across the economy are also expected to weigh on the RBA’s updated inflation forecasts. 

What it means for Tuesday’s rates decision 

NAB now expects the RBA to increase the cash rate by 25 basis points on Tuesday, taking it to 4.85%. 

If that happens, the cash rate would sit 50 basis points above its previous peak in November 2023.  

NAB Economics expects the RBA would then likely hold rates steady. However, with inflation still high and broad-based, the RBA is likely to remain focused on whether price pressures are easing sustainably. 

The next important inflation reading will be the October monthly CPI, released on 25 November. 

For households and businesses, Tuesday’s decision will ultimately come down to whether the RBA believes current interest rates are restrictive enough to bring inflation back towards its target.