Australian Inflation: Trends and Outlook

The Consumer Price Index (CPI) increased to 4.6% p.a. in the March 2026; the highest rate since September 2023.

Australia’s inflation rate came in higher than economists anticipated in March. The monthly consumer price index increased by 4.6% over the year, rising from 3.7% in the previous month as the conflict‑driven rise in fuel prices started to pass through.

As the crisis unfolded, Treasury in March 2026 modelled two energy‑crisis scenarios for the Australian economy, reflecting the heightened risks to inflation and growth.

• Under the short-term scenario, inflation rises by 0.75 percentage points above its existing 3.75% forecast for June 2026, reflecting a temporary oil price shock that generates only short-lived inflationary pressure and modest impacts on economic growth.
• In contrast, the prolonged conflict scenario lifts inflation by 1.25 percentage points and results in materially weaker economic activity, with adverse effects persisting for at least the next three years.

RBA revised baseline forecast and two adverse scenarios linked to higher energy prices in May 2026.

• In the baseline, headline inflation is expected to peak at 4.8% in the June quarter, before easing as fuel prices decline through the second half of 2026. This assumed fall in fuel prices places downward pressure on inflation, contributing to headline inflation falling to around 2.25% by mid‑to‑late 2027. The trimmed mean inflation is projected to remain above 3% until mid‑2027, before gradually moderating to 2.5% by early 2028.
• In adverse scenario 1, where significantly higher energy prices generate more persistent inflationary pressures alongside weaker economic activity, headline inflation peaks higher at 5.2% in June 2026. Trimmed mean inflation is also more elevated than in the baseline, sitting around 0.4 ppt higher by early 2027.
• In adverse scenario 2, higher energy prices are associated with a more pronounced decline in aggregate demand, and trimmed mean inflation peaks at 3.9% in the June quarter of 2026.

The Trimmed Mean Inflation (TMI), which offers a better reading of underlying inflation by excluding volatile items, was 3.3% in March.

The Producer Price Index (PPI) – a measure of industrial prices – increased to 3% in the March quarter.

 

Key contributors to rising prices in the March were transport (+8.9%), food and non-alcoholic beverages (+7.0%) and housing (+6.5%). The increase in transport costs was driven by soaring fuel prices in March, the largest monthly increase since the series began in 2017, reflecting the impact of the Middle East conflict on fuel prices.

 

Annual goods inflation was 5.5% in March up from 3.5% in February, largely driven by automotive fuel (+24.2%).

Annual services inflation down to 3.6% in March from 3.9% in February, led by rents (+3.7%) and medical and hospital services (+3.8%).

Data information

The Consumer Price Index (CPI) measures changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by metropolitan households. Comprehensive CPI data is published by the Australian Bureau of Statistics quarterly, while a reduced-price survey is conducted every month to supplement the quarterly data.

The Quarterly CPI measure is considered the more reliable indicator of inflation, as it measures all consumer prices. The monthly CPI measure is less accurate, but provides more timely insights on price changes that complement the quarterly release.

The Producer Price Index (PPI) measures changes in the price of industrial goods as they are produced. Some products – for example food – are measured in both the CPI and PPI indicators. PPI measures the price obtained by the producer, while CPI measures the price paid by the final consumer.

For more information from the ABS (including advice on using the CPI in contracts) see: https://www.abs.gov.au/statistics/detailed-methodology-information/information-papers/use-price-indexes-contracts

 

Australian Industry Group research and economics team

Website: Research and Economics Resource Centre

Email: economics@australianindustrygroup.com.au