Monthly CPI data show that headline inflation increased from 4.9 percent in July to 5.2 percent in August, further above the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. This is the first increase in this measure of inflation in four months. Despite his increase, inflation remains well below levels seen earlier in the year and at a level that is still consistent with the RBA's assessment that price pressures have moderated in response to policy tightening. This monthly indicator measures the year-over-year change in the CPI index compared with the same month twelve months earlier.

The increase in headline inflation was largely driven by a sharp increase in fuel prices. These rose 13.9 percent on the year in August after falling 7.6 percent in July. In contrast to the increase in headline inflation, the measure of inflation that excludes holiday travel and volatile items including fuel shows underlying price pressures moderated further in August, falling to 5.5 percent from 5.8 percent in July. Food price inflation slowed from 5.6 percent to 4.4 percent, while housing prices rose 6.6 percent on the year after a previous increase of 7.3 percent. Price increases were mixed in other categories.

RBA officials have left rates on hold at their previous three meetings, but have stressed that they remain concerned about upside risks to inflation and that they are ready to tighten policy further if necessary. Nevertheless, officials noted at their meeting earlier this month that fuel prices had risen sharply in August and the further decline in underlying inflation reported today will likely support their assessment that price pressures will moderate in the second half of the year.

Consumer prices in August are expected to rise to 5.2 percent versus 4.9 percent in July which compared with expectations for 5.2 percent and against 5.4 percent in June. The CPI has cooled in six of the last seven months.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services. In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are residents in the eight State/Territory capital cities. (Darwin, Perth, Sydney, Melbourne, Hobart, Brisbane, Canberra and Adelaide).

Data are released quarterly and, since 2022, monthly. Quarterly inflation data measure the year-over-year change in the index relative to the same quarter twelve months previously. Monthly inflation data measure the year-over-year change in the index relative to the same month twelve months previously.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Australia, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Reserve Bank of Australia generally follows the annual change in the consumer price index. It has an inflation target of 2 percent to 3 percent. The RBA also has two preferred core or analytical measures - the weighted and trimmed means. The trimmed mean is a method of averaging that removes a small percentage of the largest and smallest values before calculating the mean. After removing the specified observations, the trimmed mean is found using an arithmetic averaging formula. The weighted mean excludes certain items from the CPI basket (the exclusion approach). Typically, the excluded items are those that are volatile and/or display pronounced seasonal patterns, and those that are subject to administrative price setting.