September CPI: Inflation accelerating in the run up to Christmas
September Monthly CPI: Headline 0.8%mth/4.3%yr, Trimmed Mean 0.3.%mth/3.6%yr. Market services ex volatile 1.6%mth/4.0%yr. September Quarter CPI: Headline 1.3%qtr/3.9%yr; Trimmed Mean 1.0%qtr/3.7%yr.
The CPI rose 0.8% in the September month, stronger than Westpac’s 0.6% estimate and the market’s expectation of 0.7%. The annual pace picked up from 4.0%yr to 4.3%yr, The seasonally adjusted CPI rose 0.6% in September highlighting some positive seasonality in the month.
Key factors driving the headline monthly result were: automotive fuels (9.4%mth); domestic holiday travel & accommodation (8.0%mth); international holiday travel & accommodation (7.2%mth); and property rates & charges (5.5%mth). There were modest offsets from: women’s garments (–3.1%mth); household textiles (–6.6%mth); and accessories (–4.1%mth).
The Trimmed Mean (TM) gained 0.3% in September, spot on both Westpac and market expectations with the annual pace lifting from 3.5%yr (revised from 3.6%yr) to 3.6%yr. The six-month annualised pace is now 4.0%yr the fastest in the short history of this series.
Headline CPI lifted 1.3% in the September quarter compared to an expectation of 1.3% by Westpac and 1.2% by the market. This saw the annual pace hold at 3.9%yr.
The RBA’s key underlying inflation measure, the quarterly TM, lifted 1.0% vs an expectation of 0.9% by Westpac and market estimate of 1.0%. The annual pace lifted from 3.6%yr to 3.7%yr with the six-month annualised pace accelerating to 3.7%yr from 3.4%yr.
Overall, the estimates come in broadly as expected so we see minimal risk to our current December quarter forecast of 1.3%qtr for the headline CPI. Softer housing inflation does present a very modest downside risk to our 0.9%qtr for the TM but there are offsetting gains elsewhere.
The September CPI update revealed underlying inflationary pressures continuing even while a moderation in housing inflation (dwellings in particular) is unfolding slightly faster than we had anticipated. As such, the near-term risk for inflation remains to the upside. The RBA will remain alert to these near-term inflationary risks and as so, we hold to the view that the RBA will raise rates again at the November meeting.
Month of September CPI
The monthly CPI rose 0.8%mth in September, above both our expectation of a 0.6%mth increase and the market forecast of 0.7%mth. This lifted the annual pace by 0.3ppts to 4.3%yr. On a seasonally adjusted basis, the CPI increased 0.6%mth.
The key contributors to the monthly increase were: automotive fuel (9.4%mth, +0.3ppts); and holiday travel & accommodation (7.6%mth, +0.5ppts), alongside a smaller contribution from the annual reset in property rates (5.5%mth, +0.1ppt). There was no single major offset. Instead, several components across household furnishings and clothing & footwear recorded modest declines, together subtracting a little over 0.1ppt from the monthly result.
The monthly trimmed mean (TM) rose 0.3%mth, in line with both our and the market’s expectations. The annual pace edged up to 3.6%yr, although the August outcome was revised down to 3.5%yr. Underlying inflation has remained broadly stuck in the 3.5–3.6%yr range since May. On a 3m/3m basis, the monthly TM was 1.1%.
Market services excluding volatile items and holiday travel were flat in the month, with annual inflation easing to 3.8%yr, its softest pace since November 2025. On a seasonally adjusted basis, monthly inflation moderated across most components in this measure, with telecommunications services, rents and other financial services the key exceptions. However, all but two components are still recording annual price growth above 3%, suggesting that disinflation across market services remains slow and relatively narrow. The persistence of these underlying price pressures is likely to remain a concern for the RBA.
Housing inflation was notably softer in the month, rising 0.3%mth to be 5.2% higher over the year. Rents increased 0.2%mth, slightly below our expectation for a 0.3%mth rise. The biannual indexation of Commonwealth Rent Assistance occurred late in the month, weighing on the September outcome, with the remainder of the impact expected to flow through in October. The ABS noted that rents would have risen 0.3%mth in the absence of the measure, while on a seasonally adjusted basis rents increased 0.4%mth.
New dwelling inflation was flat in the month, the softest reading since May 2025. Monthly inflation has now slowed in each successive month since May 2026, suggesting homebuilders’ pricing power is becoming increasingly constrained. The ABS noted that some project home builders raised base prices this month only to be offset by some builders increasing discounts and promotional offers in response to slowing demand. The annual pace eased to 4.7%yr. Dwelling repair costs were also a downside surprise, falling 0.1%mth, their first decline since February 2025, although prices remain 3.4% higher over the year. Some of this softness was offset by a firmer-than-expected increase in property rates and charges, which rose 5.6%mth.
Recently, we have also focused on audio, visual and computing given the potential for spillovers from strong global demand for semiconductors and other computing resources associated with the AI build out. Prices for both equipment and services came in weaker than August, with equipment prices falling 1.1%mth, while services rose 0.3%mth. Despite this, annual price growth remains relatively high for these categories, running at 4.6% and 4.9% respectively. Some of this pressure might also be showing through in gaming, toys and hobbies, which is running at 5.2%mth/15.5%yr.
Overall, the breadth of inflation moderated for a second consecutive month. The share of the basket running above 3%yr fell from 40% to 35%, meanwhile the share below 2%yr lifted from 27% to 32%. Our replication of the San Francisco Fed’s inflation shock momentum served as a good guide to the quarterly TM. With the full monthly reads in for the September quarter in, this measure does signal some persistence/upside pressures for the quarterly TM going into the coming quarters. It is worth cautioning that this measure will be impacted as the ABS refines its seasonal adjustment process for the monthly indexes.
Compared to our expectations, the key surprises were:
Upside surprises
- Fruit & vegetables was the key upside surprise, 0.6%mth against our expectations for 3.7%mth fall.
Holiday travel & accommodation also surprised to the upside, following a run of downside surprises since early this year. It rose 7.6%mth against our expectations for a 4.4%mth lift.
Automotive fuel rose 9.4%mth against expectations of an 8.3%mth lift.
Downside surprises
Clothing & footwear was the key downside surprise with prices falling 2.7%mth against our expectations for a 0.2%mth fall. The misses were broad-based: garments (–2.3%mth vs –2.0%mth); footwear (–2.5%mth vs 1.8%mth); and accessories & clothing services (–4.1%mth vs 2.8%mth).
Household textiles declined 6.6%mth against our expectations for a 3.2%mth fall. Furniture & furnishings rose by less-than-expected 0.4%mth vs 1.6%mth. Household appliances, utensils and tools also came in softer, –3.2%mth vs –2.4%mth.
Dairy prices fell 1.2%mth against our expectations for a 0.1%mth lift.
September Quarter CPI
The September quarter CPI printed spot on our expectation of 1.3%. The key factor driving this increase was the slightly stronger surge in auto fuel (7.8%, +0.27ppt) and holiday travel & accommodation (2.7%qtr, +0.16ppt) being offset by a slightly softer than expected increase in housing (1.1%qtr, +0.24ppt) with rents and dwellings both increasing 1.0% in the quarter and utilities lifting 1.2%. Food was also slightly stronger than expected (0.7%qtr, +0.12ppt) and while not significant to the overall result it is interesting to track the ongoing rise in motor vehicle prices (0.3%qtr) despite a very competitive market with Chinese manufacturers rapidly gaining market share over legacy brands.
It is worth noting that food was stronger than we expected (0.7% vs 0.5%) with a robust 1.7% increase in restaurant meals and a solid 1.2% increase in take away & fast foods outweighing the –0.4% decline in fresh fruit & vegetables and meat & seafoods. Overall, market services ex volatile prices increased a very solid 1.2%qtr but with the annual pace easing to 3.2%yr from 3.36%yr.
Outside of housing the other main downside surprise in the quarter was the –0.6% fall in clothing & footwear (+0.3% expected) with prices falling across just about all categories of garments, footwear and accessories.
September Quarter Trimmed Mean
Recall that the TM is calculated from seasonally adjust consumption expenditure classes so any numbers quoted here may not be the same as the original estimates quoted from the CPI. The TM gain of 1.0% in the quarter was slightly stronger than we had expected even though dwellings (which have a weight of almost 11% in the TM) was a touch softer at 1.0% compared to the 1.1% we had pencilled in. Rents (1.0%, 10% weight) also made a solid contribution as did restaurant meals (1.7%qr, 6% weight), take away & fast food (1.2%, 4% weight), other financial service (1.0%, 6% weight). Domestic travel was in the TM (1.0%, 4% weight) as was medical & hospital service (1.0%, weight 5%). The range of the TM was from 0.0% (motor vehicles) to 1.7% (beer).
What does this mean for our December quarter forecast and into 2027?
We are working though the monthly results to see what changes they may imply for individual component inflationary momentum. Our preliminary analysis suggests that the softer trend in dwellings is not enough, on its own, to change our Q4 CPI forecast of 1.3%. It does, however, suggest that if all else held equal (which is not the case as there is likely to be some offsetting stronger gains elsewhere) the moderation in dwelling inflation presents a very modest downside risk our Q4 TM estimate of 0.9%. We are still working the numbers and will publish an updated inflation profile as soon as we can. In addition, the overall momentum in underlying inflationary pressures suggest the downside risk to the TM from dwellings is more likely to appear in 2027 than in the last quarter of 2026.
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