Inflation hit 4.3%. Here’s what’s really driving it (and what a rate rise can’t fix)

Two things got more expensive in Australia this year faster than almost anything else. The petrol in your car and the power to your house.

That's not a guess. It's the ABS's own numbers, released on Wednesday 28 October. Annual inflation rose to 4.3% in September, up from 4.0% a month earlier. Markets now put the odds of the RBA lifting rates on Melbourne Cup day at around 90%.

So is a fifth rate rise this year a done deal? Probably. But it's worth asking a different question. What will it actually fix?

In this post we'll cover:

1. Where September's inflation came from
2. The part of inflation that's already cooling
3. What about government spending?
4. What a rate rise would cost you
5. What you can do before Tuesday

Where September's inflation came from

Think of the headline inflation number as a shopping trolley. Some items in the trolley got a lot dearer. Others barely moved.

The two biggest movers were:

• Petrol, up 23.6% in a year (and 9.4% in September alone). The cause is the conflict in the Middle East pushing up world oil prices. RBA Governor Michele Bullock told a Senate committee this week that energy prices are "much higher than assumed in August".
• Electricity, up 12.8% in a year. The ABS says this is largely due to the ending of the Commonwealth's electricity rebates. The $75 a quarter Energy Bill Relief payments stopped on 31 December 2025, so this year's bills are being compared with last year's discounted ones.

Here's the interesting part. Take petrol, fruit and veg and holiday travel out of the September figures and prices were flat in the month. Zero.

Note: A higher cash rate doesn't change the price of a barrel of oil. It doesn't bring back a power bill rebate either. Those prices are being set in the Middle East and in Canberra.

The part of inflation that's already cooling

Interest rates work by cooling demand. The place they bite first is housing. So how is housing going?

• New home prices were flat in September and annual growth eased from 5.4% to 4.7%.
• Rents have held at 3.6% annual growth since May.
• Home values have fallen for six months in a row according to Cotality. Brisbane fell 1.5% in September, the biggest drop of any capital city.
• Jobs are softening. Unemployment is 4.7%, the highest since COVID.

In a nutshell, four rate rises this year have done what they were meant to do. The housing market has got the message.

Now the inconvenient bit (because it would be wrong to leave it out). Underlying inflation is still too high. The RBA's preferred measure, the trimmed mean, rose 1.0% in the quarter. That works out to roughly 4% a year, well above the RBA's 2 to 3% target. Services prices are up 4.1%. So the RBA does have a real problem. It's just that the jump everyone is reacting to this week is mostly petrol and power.

What about government spending?

It's a fair question. Federal spending was forecast to reach 26.9% of GDP in 2025–26, a record outside the COVID years.

The inflation figures don't measure its effect directly. The CPI tracks the prices you pay, not what caused them. But government decisions do show up in it:

• Power bills jumped once the federal rebate ended. It's the biggest single policy effect in the numbers.
• Rent Assistance went up on 20 September, which slightly lowered the measured rise in rents.
• Council rates are up 5.6% in a year.

The bigger effect is on demand. When governments spend, households and businesses have more money to spend too. RBA Governor Michele Bullock has said government spending is part of the demand the RBA is trying to slow. She has also said the recent rise in inflation is mainly coming from private demand, so how much government spending adds is hard to pin down.

So why does it matter for your mortgage? The RBA has one lever: the cash rate. If spending keeps adding to demand, rates have to do more of the work. It's borrowers on variable rates who feel it.

What a rate rise would cost you

Example:

• Loan: $600,000, principal and interest, 30 years
• Variable rate before the rise: 6.25%
• Repayment: about $3,694 a month
• Variable rate after a 0.25% rise: 6.50%
• New repayment: about $3,792 a month
• Extra cost: about $98 a month, or roughly $1,180 a year

And if you started the year at 5.25%, five rises would mean you're paying close to $480 a month more than you were in January.

(These figures are illustrative only. Your own rate and loan will differ.)

What you can do before Tuesday

You'd happily spend an hour hunting for cheaper fuel. A phone call about your home loan is worth a lot more than a few cents a litre.

Hot Tip: Lenders often offer new customers a sharper rate than the one their existing customers are on. Ask your lender to match it. If they won't, that's your answer.

A few other things worth doing now:

1. Check your rate against what's on offer. If you haven't looked in the last 12 months, you're probably due.
2. Rebuild your buffer. Put a little extra into your offset or redraw now so the next rise doesn't come as a shock.
3. Think carefully about fixing. Fixed rates already factor in where the market thinks rates are heading. Fixing for the sake of it can cost you if rates come down sooner than expected.
4. Talk to someone who can compare. A broker can look across a large panel of lenders in one go (we work with 50+). In most cases you won’t pay us a fee.

If you'd like a second set of eyes on your loan before the RBA meets, get in touch with the Time Home Loans team on (07) 3194 0888.

This article contains general information only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you before acting. Repayment examples are illustrative.

Data sources: ABS Consumer Price Index, September 2026; Cotality Home Value Index, September 2026; ABS Labour Force, September 2026.