Inflation rises to 4% as fuel and housing costs test rate outlook

Australian inflation rose to 4 per cent in the year to August, a day after the Reserve Bank increased interest rates for the fourth time in 2026. The figures have renewed debate over how much of the pressure is coming from overseas and how much is being generated at home.

The Consumer Price Index rose from 3.5 per cent in the year to July, according to figures released by the Australian Bureau of Statistics on Wednesday. Housing costs were the largest contributor to annual inflation, rising 5.7 per cent, while transport costs rose 5.6 per cent.

Petrol was the sharpest monthly movement. Automotive fuel prices jumped 14.8 per cent in August as world oil prices rose and the remainder of the federal government’s fuel excise relief ended. The cost of building a new home was 5.4 per cent higher than a year earlier, reflecting higher materials and labour costs. Electricity prices were up 13.2 per cent over the year, largely because Commonwealth rebates had ended and because of when rebates were paid in 2025.

The underlying picture was less clear-cut than the headline rise suggests. Annual trimmed mean inflation, which removes the largest price movements at either end, held at 3.6 per cent for a third month. It rose 0.2 per cent in August after a 0.5 per cent increase in July. Fuel and electricity were excluded from the August trimmed mean calculation.

Those figures have produced different readings of what the Reserve Bank may do next. Bendigo Bank chief economist David Robertson said the slower monthly rise in trimmed mean inflation should make another increase in November less likely. His bank expects rates to remain on hold for the rest of 2026, although it sees a risk of another rise next year.

The Australian Chamber of Commerce and Industry took a more troubling message from the data. Chief executive Andrew McKellar said inflation in goods and services more exposed to domestic conditions remained high and renewed his call for governments to reduce spending and regulatory costs. “Bringing inflation down should not fall on businesses and mortgage holders alone,” he said.

Treasurer Jim Chalmers argued that higher fuel costs and the unwinding of energy rebates accounted for the increase in the annual headline rate. He acknowledged that Australia had an inflation challenge before the latest escalation of the Middle East conflict, but said the conflict was making it worse.

The figures do not settle the wider dispute over government spending. Fuel and rebate effects help explain why the headline rate rose in August, while annual trimmed mean inflation at 3.6 per cent shows price growth beneath those movements remains above the Reserve Bank’s 2 to 3 per cent target.

On Tuesday, the Reserve Bank raised the cash rate by 0.25 percentage points to 4.60 per cent. Its decision cited higher global energy prices, stronger-than-expected recent inflation and continuing pressure on domestic capacity. The bank said it could raise rates again if needed, making the next inflation readings important for borrowers already facing higher repayments.