Australia Annual Inflation Hits 4.2% in September Quarter

Australia annual inflation figures released for the September 2025 quarter show the Consumer Price Index (CPI) has risen by 1.3% for the quarter. This significant quarterly increase has contributed to an annual inflation rate of 3.2% over the past twelve months.

Housing costs have notably driven this inflation surge, with a 2.5% increase during the quarter, followed by recreation and culture at 1.9% and transport at 1.2%. Furthermore, the trimmed mean inflation, which excludes the most volatile price movements, reached 1% for the quarter, considerably higher than the Reserve Bank of Australia’s prediction of 0.6%. Consequently, the annual trimmed mean inflation hit 3%, positioning it at the upper limit of the RBA’s preferred 2-3% target band. The Australian annual inflation situation appears particularly challenging as experts note that this headline shock is likely enough to halt any potential RBA rate cuts.

ABS Reports 4.2% Annual Inflation for September Quarter

Inflation data for the September 2025 quarter showed a significant inflation surge, according to the Australian Bureau of Statistics. This marks a concerning trend as price pressures intensify across multiple sectors of the Australian economy.

Quarterly CPI Rises 1.3% Amid Housing and Transport Pressures

The Consumer Price Index increased by 1.3% during the September 2025 quarter, representing the highest quarterly inflation surge since March 2023. According to Michelle Marquardt, Head of Prices Statistics at the ABS, this substantial quarterly rise was primarily driven by several key sectors. Housing costs surged by 2.5%, while prices for recreation and culture increased by 1.9%, followed by transport, which rose by 1.2%. Additionally, electricity costs jumped by 9.0%, mainly contributing to the overall housing inflation figure this quarter. Property rates and charges also saw their sharpest increase in more than a decade, rising 6.3% – the most significant quarterly increase since 2014.

Annual Inflation Climbs From 3.2% to 4.2%

The annual inflation rate reached 3.2% in the twelve months to September 2025, a substantial increase from the 2.1% recorded in the June 2025 quarter. This places inflation above the Reserve Bank of Australia’s target band of 2-3% for the first time since June 2024. Moreover, the latest figures have exceeded market expectations, with economists previously forecasting a rise of approximately 3.0%. The surge in the Australia annual inflation was heavily influenced by goods inflation, which jumped to 3.0% from 1.1% in the previous quarter. Similarly, services inflation accelerated to 3.5% from the three-year low of 3.3% recorded in the June quarter.

Trimmed Mean Inflation Hits 3.0%, up from 2.7%

The trimmed mean measure – the RBA’s preferred indicator of underlying inflation – rose by 1.0% in the quarter, considerably higher than market forecasts of 0.8%. On an annual basis, the trimmed mean inflation rate increased to 3.0%, up from 2.7% in the June quarter. This represents the first time trimmed mean annual inflation has increased since December 2022, a concerning development for the Reserve Bank. The trimmed mean excludes the most extreme price changes to provide a clearer picture of underlying inflation pressures. Overall, this unexpected jump in core inflation is particularly worrying, as it stands at the top of the RBA’s target band, especially given the central bank’s recent focus on achieving the midpoint of its 2-3% range.

Electricity and Housing Costs Drive Price Surge

Housing costs have emerged as the primary driver of Australia’s surging inflation, with electricity prices and property costs significantly impacting household budgets nationwide.

Electricity Prices Rise 9% Due to Rebate Expiry

Electricity costs jumped 9.0% in the September quarter, following an 8.1% increase in the June quarter. This substantial rise stems from two key factors: annual price reviews that took effect from July 2025 and the expiration of state government rebates. The annual electricity price increase reached a staggering 23.6% over the past 12 months. This spike primarily reflects higher out-of-pocket costs for households in Queensland, Western Australia, and Tasmania, where substantial rebates (AUD 1,528.99, AUD 611.60, and AUD 382.25, respectively) have now been fully utilised. Without these rebate effects, electricity prices would have increased by only 4.8% this quarter.

Housing Inflation Led by Property Rates and Rents

Property rates and charges recorded their highest increase since 2014, rising 6.3% as local councils implemented their annual reviews. This increase reflects higher general rates across all capital cities, alongside increased waste levies and additional council charges. Meanwhile, rental prices rose 3.8% over the 12 months to September, down from 4.5% in the June quarter. Despite this moderation, the rental market remains tight, with only 1.47% of properties available to lease nationwide—less than half the pre-COVID average. The median weekly cost for capital city housing has surged 44% over the past five years to exceed AUD 1,070.29, with Sydney remaining the most expensive city at AUD 1,233.90 per week.

New Dwelling Prices Show a Modest Increase

New dwelling construction costs showed a slight uptick, with prices rising 0.9% over the 12 months to September, marginally higher than the 0.7% recorded in the June quarter. Throughout the past year, project home builders responded to subdued market conditions by offering incentives and promotions to attract new business. However, recent months have seen a slight improvement in demand, prompting builders in some cities to reduce promotional offers and raise base prices.

Related Article: Build to Rent: A Structural Shift in Australia’s Housing Economy

Food, Transport and Services Add Upward Pressure

Beyond housing costs, Australia annual inflation was further fueled by steady pressure from food, transport, and services sectors throughout the September quarter.

Food inflation Steady at 3.1%

Annual food and non-alcoholic beverage inflation remained relatively consistent at 3.1% in September, a slight increase from 3.0% in August. This stability marks the sixth consecutive quarter where food inflation has hovered around the 3% mark. Primarily driving this trend were meals out and takeaway foods, which rose 3.3% compared to 12 months ago. Coffee prices experienced a dramatic surge, with the coffee, tea, and cocoa category increasing 14.6% annually. This steep increase reflects reduced supply from major overseas coffee bean suppliers. Indeed, the average cost of takeaway coffee has reached AUD 8.46, up from AUD 7.31 in 2023—a substantial 15.69% increase.

Transport Costs Rise 1.2% as Fuel Prices Stabilise

Transport prices increased 1.2% in the September quarter, alongside a 2.0% quarterly rise in automotive fuel prices. Annually, transport costs rebounded (0.8% vs -2.6%). The typical Australian household now spends 17% of its income on transport, up from 15.9% 12 months previously. The national average unleaded fuel price has remained at approximately AUD 2.75 per litre for the past five quarters. Fuel expenditure for the average capital city household has risen above AUD 152.90 weekly.

Services Inflation Remains Sticky at 3.5%

Annual services inflation climbed to 3.5% in the September quarter, up from 3.3% in the previous quarter. This uptick reflects increased prices across several categories, including restaurants, dentists and veterinary services. Additionally, domestic holiday travel costs increased due to higher prices for accommodations and airfare. Medical and hospital services saw a significant 5.1% annual increase. Conversely, annual rent inflation eased to 3.8%, its lowest level since December 2022.

ABS Prepares for Monthly CPI Transition

The Australian statistical landscape is set to undergo a significant shift as the Australian Bureau of Statistics (ABS) finalises its transition from quarterly to monthly inflation reporting.

Monthly CPI to Replace Quarterly as Headline Measure

The ABS has officially confirmed that the first complete Monthly Consumer Price Index (CPI) will be published on 26 November 2025, using data for October 2025. This publication marks the final time the quarterly CPI will serve as Australia’s primary measure of headline inflation. Subsequently, the Monthly CPI Indicator, introduced in 2022, will be discontinued. This change aligns Australia with all other G20 countries, making international inflation comparisons more straightforward.

Mock-up and Methodology Released for Public Review

In preparation for this significant transition, the ABS has released a mock-up of the complete Monthly CPI publication, including table shells and series IDs. Additionally, an information paper titled “Evolving Australia’s Consumer Price Index” was published, detailing how Australia’s price collection has evolved since the early 1900s. The ABS has rebuilt its CPI IT system within a secure, efficient cloud environment to manage the larger volumes of data required.

Experts Weigh in on Benefits of Frequent Data

Economists have long advocated for monthly inflation updates to better track the evolution of inflation on a month-to-month basis. About two-thirds of the products and services in the CPI basket are currently covered by the Monthly CPI Indicator. Henceforth, the complete Monthly CPI will reflect price changes on a monthly basis. While seasonal fluctuations in the new monthly series settle, the Reserve Bank of Australia has stated that it will initially continue to concentrate on quarterly reports.

Conclusion – Australia Annual Inflation

Australia faces significant economic challenges as inflation continues its upward trajectory. The latest figures undoubtedly paint a concerning picture, with the 4.2% annual rate substantially exceeding the Reserve Bank’s target band. This marked increase, driven primarily by housing costs and electricity prices, signals persistent inflationary pressures throughout the Australian economy.

Electricity costs, which jumped 9.0% following the expiry of government rebates, have become a significant burden for Australian households. Additionally, property rates recorded their highest increase since 2014, rising 6.3% across all capital cities. These housing-related expenses, coupled with steady food inflation and rising transport costs, have created a perfect storm for consumers already struggling with cost-of-living pressures.

Australian consumers, therefore, must prepare for continued financial pressure as these inflation figures will likely prompt the Reserve Bank to maintain its restrictive monetary policy stance. The central bank remains focused on bringing inflation back toward the mid-point of its target range before considering any easing measures.

Overall, these inflation figures underscore the persistent economic challenges facing Australia as it enters 2026. The combination of housing pressures, energy costs, and stubborn services inflation suggests that higher prices will remain a reality for Australian households in the foreseeable future, regardless of any short-term fluctuations in individual components of the inflation basket.

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