CPI release comes ahead of Reserve Bank decision next week as the Middle East conflict intensifies the cost-of-living crisis

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Australia’s headline inflation rate has accelerated to 4.3%, with a key gauge that strips out volatile prices also elevated, sharpening expectations of another interest rate rise next week.

The Reserve Bank of Australia’s preferred measure of consumer prices, called underlying inflation, came in at an annual 3.6% to September.

RBA officials have strongly indicated the board may need to lift borrowing costs further to drag price growth back toward its 2.5% target, citing concerns of a “materially worse” inflation outlook.

The CPI release comes shortly ahead of the central bank’s next monetary policy decision on 3 November, when most economists are tipping another cash rate increase.

The RBA’s deputy governor, Andrew Hauser, described the inflation numbers as “too high” at Senate estimates on Wednesday, shortly after the data was released.

He said there was a “nightmare” risk that longer-term inflation expectations would pick up, making it harder to get inflation out of the system.

“We don’t think it is necessarily crystallising yet, but it is a particular risk,” Hauser said.

The cash rate, which informs lending rates including mortgages, already stands at 4.6%, its highest level in 15 years, after four rate hikes in 2026.

A fierce political debate has erupted in Australia over what is driving the cost-of-living squeeze, with critics pointing to a mix of high fuel prices caused by the Iran conflict, government spending and poor productivity.

The treasurer, Jim Chalmers, said on Wednesday that while “we accept our part in the fight against inflation”, high oil prices and a recovering private sector were the main causes of the rise.

“The most important thing that can happen for Australians under pressure is to see an end to this war in the Middle East,” Chalmers said.

“This war in the Middle East has been disastrous for Australians, for cost of living and for inflation, right around the world.”

Growing unease

CPI figures released by the Australian Bureau of Statistics on Wednesday show that costs for everyday goods and services are rising at the same time as unemployment lifts, making life uncomfortable for households.

Transport costs have risen 8.7% over the past 12 months, due in large part to escalating fuel prices stemming from the US and Israel conflict with Iran.

While higher fuel prices are trickling through the economy, there are price pressures everywhere.

Food prices have also jumped another 3.2% in a year, and housing costs were up 5.2%.

Stephen Smith, partner at Deloitte Access Economics, said the RBA had “little appetite to allow inflation expectations to drift higher after such a prolonged period above target”.

“The difficulty is that the economy is already slowing. Household spending is subdued, the labour market has softened and the housing market has weakened,” Smith, who is expecting a rate rise next week, said.

The escalating expenses have fed into the growing political unease in Australia and elsewhere, as voters express their discontent with cost-of-living pressures.

Housing, which is the single biggest category in the CPI, was the largest contributor to annual inflation, according to the ABS, followed by transport costs.

Builders have been passing on higher costs for materials and labour for new dwellings, while electricity prices are also elevated.

Josh Gilbert, market analyst at eToro, said inflation was turning into a “higher-for-longer” story in Australia.

“Anyone holding out for rate relief may need to pack plenty of patience, because another hike looks imminent after today,” Gilbert said.