Consumer price index

IBISWorld forecasts the CPI to average 144.3 index points in 2025-26, which represents a 2.9% rise over the previous year. Although the CPI is expected to rise in 2025-26, the growth rate is expected to be within the RBA's target band.

The effect of the RBA's decisions to raise the cash rate in an effort to manage rampant inflation—from May 2022 through to the latest hike in November 2023—has weighed on consumer spending and has had a flow-on impact on inflation, even with the latest rate cuts in February, May and August 2025. As part of the 2024-25 Federal Budget, the Australian Government delivered electricity subsidies to provide cost-of-living relief to Australians, placing downwards pressure on the CPI. However, these rebates are set to expire by the end of 2025. According to the RBA's August 2025 monetary policy statement, the unravelling of these electricity rebates will place upwards pressure on headline inflation over the two years through 2026, potentially causing it to settle above 3% in the second half of 2025 before gradually easing to the central bank's target range. The RBA also expects housing inflation to rise more than anticipated over the two years through 2026, driven by lower cash rates spurring housing demand. In September 2025, the RBA decided to hold rates steady, while highlighting that inflation in the September quarter may exceed the projections made in the August statement, reflecting the central bank's cautious approach amid changing economic conditions. Factors like the labour market, domestic demand and interest rates, will continue to heavily influence CPI growth over the coming quarters.

The RBA uses monetary policy tools in order to maintain the inflation rate in a desired target band of 2-3%. The RBA's tools for controlling inflation have a lagged effect and forecasting errors make it difficult to estimate future inflation, so fluctuations can occur. In the short-term, by using monetary policy to cut interest rates, the RBA can ignite demand for goods and services and drive economic growth, ultimately achieving a lower unemployment rate. The RBA seeks to average the target range for the inflation rate over the economic cycle. This allows for a higher inflation rate during part of the economic cycle to maintain full employment. Concerns around inflation exceeding the targeted range have led many central banks around the world to halt interest rate rises, with the RBA following suit. However, as inflationary pressures begin to ease, central banks, including the RBA have started cutting rates.

Real GDP and residential housing prices have lifted over the past five years, supporting growth in the CPI. Furthermore, the Federal Government's monetary and fiscal policies have supported CPI growth over the past five years, particularly during the pandemic. While public demand has been a key contributor to economic growth over most of the past five years, private demand is recovering quicker than anticipated as private consumption hikes. Overall, IBISWorld forecasts the CPI to increase at a compound annual rate of 4.2% over the five years through 2025-26.