New home costs, electricity bills and soaring oil prices lift inflation to 4% as mortgage holders brace for more hikes
Australia's headline inflation rate rose from 3.5% to 4% in the year to August, with housing costs the single biggest contributor to the spike, alongside surging petrol prices.
While the Reserve Bank of Australia's (RBA) preferred underlying measure did not budge from 3.6%, the result will give the central bank's hawks more ammunition for another rate hike, merely a day after pushing the cash rate to a 15-year high of 4.6%.
Trail Homes founder and managing director Nick Young noted the print was “slightly on the better side than we were expecting”, but "4% is still a big number though”, particularly given the RBA is at pains to get inflation back within the 2-3% target band. Market forecasts had the headline print coming in at 4.1%.
According to the Australian Bureau of Statistics (ABS), higher electricity costs and new dwelling prices drove the rise in housing, with builders passing on higher material and labour costs.
Fuel prices rose sharply as world oil prices climbed and the remaining federal fuel excise relief ended.
Young said petrol costs were now "seeping through the economy" as the Middle East conflict drags on. "I just don't see that going away and it's gonna be a driver of inflation for some months yet.”
What does the inflation data mean for further rate hikes?
The RBA's Monetary Policy Board raised the cash rate by 25 basis points on Tuesday, marking the fourth increase of 2026 and taking the cash rate to its highest level since 2011, following weeks in which all four major banks tipped a September hike.
The decision was unanimous, although RBA governor Michele Bullock said the board had considered holding but did not rule out another rise later this year. She described the August inflation figures as backward-looking and said the board was focused on keeping financial conditions tight enough to bring inflation down. Her aim, she said, is to "stop expectations for high inflation from becoming embedded in price-setting decisions".
“We raised interest rates three times earlier in the year… the hope here is that this will be restrictive enough ... to bring things down,” she said.
But economist and former NAB global head of research Peter Jolly said history favours more tightening. "Historically RBA rate hikes don't come in singles. They tend to come in doubles or more," he said, noting that the RBA kept rates put at the previous two meetings.
Jolly echoed Bullock's warning about inflation becoming embedded. He was also sceptical of her hope that the latest hike might be enough. "I would say hope is not a good strategy for the Reserve Bank, you or me," he said. His forecast is one more rate hike, possibly in November, followed by an extended hold.
ANZ has also kept its forecast for a further rise in November, and Westpac's base case is a follow-up hike next month. Markets are less convinced, pricing only around a one-in-four chance of a November move.
Inflation by the numbers
Prices rose 0.4% in August alone, or 0.7% once seasonal swings are stripped out.
Housing costs rose 5.7% over the year, up from 5% in July, and accounted for roughly a third of the headline figure. Electricity did the heaviest lifting. Power bills jumped 13.2% over the year, more than double July's annual rise of 6.1%, largely because Commonwealth energy rebates have ended.
New home prices rose 5.4%, as project home builders lifted base prices to pass on higher labour and materials costs. That was a slight easing from 5.7% in July. Rents rose 3.6%, unchanged since May.
Transport was the second-largest contributor, up 5.6% over the year. Petrol prices surged 14.8% in August alone, almost double July's 7.5% rise, as world oil prices climbed and the remaining federal fuel excise relief was unwound. Transport's contribution to annual inflation more than tripled in a single month.
Underlying inflation told a calmer story. The trimmed mean rose just 0.2% in the month, below the 0.3% economists had forecast and down from 0.5% in July. Fuel and electricity were both excluded from the trimmed mean in August, which explains most of the gap between the two measures.
The composition of the result still hands the hawks a strong argument. Prices driven by domestic conditions, such as housing and education, rose 4.5% over the year. Prices exposed to international trade rose 2.9%.
Elsewhere, food inflation eased to 3%, although meals out and takeaway rose 4.1%. Tobacco climbed 11.5% and insurance rose 5.6%.
Across the capitals, Hobart recorded the highest annual inflation at 4.8%, followed by Adelaide at 4.7%, where housing costs jumped 7.9%. Melbourne was lowest at 3.5%, while Sydney came in at 3.9%.
