Inflation rises to 4.0 per cent: where the pressure is coming from

Prices rose 4.0 per cent in the year to August 2026, up from 3.5 per cent in the year to July, according to the Australian Bureau of Statistics (ABS). The figures come from its Consumer Price Index (CPI), released on 30 September 2026, which tracks the prices households pay for a broad basket of goods and services. Fuel and electricity led the increase, while underlying inflation, a measure that sets aside the largest price swings, held at 3.6 per cent.

The release came a day after the Reserve Bank of Australia (RBA) lifted the cash rate target to 4.60 per cent, its fourth increase this year. The cash rate is the interest rate banks pay to borrow from each other overnight.

Fuel prices rose sharply as excise relief ended

Transport was the second largest contributor to inflation, with costs up 5.6 per cent over the year. Automotive fuel prices rose 14.8 per cent in August alone, after a 7.5 per cent rise in July, and were 13.5 per cent higher than a year earlier. The ABS linked the August jump to higher world oil prices and the end of the remaining federal fuel excise relief.

Fuel excise is the federal tax charged on each litre of petrol and diesel. From 1 April 2026 the Australian Government cut it from 52.6 cents to 20.6 cents a litre for three months, after fuel prices spiked with the conflict in the Middle East. The discount was reduced to 16 cents a litre from 1 July, and the full rate returned on 3 August 2026.

Power bills and building costs lifted housing

Housing was the largest contributor to inflation, with costs up 5.7 per cent over the year, from 5.0 per cent in July. The ABS named three main contributors.

• Electricity, up 13.2 per cent. The ABS put this largely down to the end of the Commonwealth's Energy Bill Relief Fund rebates, which were still reducing household power bills a year earlier.
• New homes, up 5.4 per cent. Project home builders raised their base prices to pass on higher labour and materials costs.
• Rents, up 3.6 per cent. Rental inflation has held at this pace since May 2026.

Underlying inflation held at 3.6 per cent

The headline CPI counts every price change, however large. The trimmed mean is one of the main measures of underlying inflation. It lines up the monthly price changes of the 87 categories in the CPI basket, sets aside the largest rises and falls, and averages the middle 70 per cent. In August the trimmed mean held at 3.6 per cent for a third month. Fuel and electricity were both trimmed out, and the ABS said they were the main reason headline inflation ran above it.

The RBA watches this measure because big price swings often have temporary causes, such as a tax change, a rebate ending or unusual weather. Such swings may say little about the wider economy. Price rises across a broad range of items can signal a shift in economic conditions, which the RBA may respond to by changing the cash rate. Both measures remain above the RBA's target of keeping annual inflation between 2 and 3 per cent. In its 29 September statement, the RBA said "inflation is still too high" and noted that higher fuel prices had partly flowed into other prices.

Savers can compare interest rates with inflation

For savers, a useful figure is the real return: the interest rate earned minus inflation. It shows whether money set aside can buy more or less over time. The cash rate strongly influences deposit rates, although competition and other factors also affect them. As an illustration only, a return of 4.60 per cent with prices rising 4.0 per cent would give a real return of about 0.6 per cent a year, before tax. Both interest rates and inflation can change.

A term deposit fixes an interest rate for an agreed term, so the rate is known in advance, although the real return still depends on inflation. Withdrawing early can mean giving notice and accepting a lower rate. Term deposits with Australian banks, building societies and credit unions authorised by APRA, the banking regulator, are covered by the Australian Government's Financial Claims Scheme. It protects deposits up to $250,000 per account holder at each institution.

Treasury Indexed Bonds are medium to long term Australian Government bonds whose capital value is adjusted for movements in the CPI, so it rises as consumer prices rise. Interest is paid quarterly at a fixed rate on that adjusted value, and at maturity the investor receives the adjusted capital value. Individuals can buy them on the ASX in a form called exchange traded Treasury Indexed Bonds. As with other bonds, their price can change with market conditions before maturity. Your adviser can help weigh how cash accounts, term deposits, bonds and growth investments such as shares and managed funds fit your plans.

The September figures are due on 28 October

The ABS will publish the September 2026 CPI on Wednesday 28 October 2026. That release will also include the September quarter figures, as the ABS now adds quarterly data to its monthly releases for March, June, September and December. The RBA's remaining meetings this year are on 2 to 3 November and 7 to 8 December, and the October CPI is due on 25 November 2026.

If you would like to talk about what higher inflation means for your cash, term deposits, investments or super, your adviser is here to help.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning