Monthly CPI data show that headline inflation rose from 5.2 percent in August to 5.6 percent in September, above the consensus forecast of 5.3 percent. This is the second consecutive increase in monthly headline inflation and takes it further above the Reserve Bank of Australia's target range of 2.0 percent to 3.0 percent. Quarterly CPI data also released today, however, showed a fall in both headline and underlying measures of inflation in the three months to September. 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 in September was largely driven by a further sharp acceleration in fuel prices. These rose 19.7 percent on the year in September after increasing 13.9 percent in August. Food price inflation also picked up from 4.4 percent to 4.7 percent, while housing prices rose 7.2 percent on the year after a previous increase of 6.6 percent. Price pressures moderated in most other categories.

Despite the increase in headline inflation, today's data do not show an increase in underlying price pressures in September. The measure of inflation that excludes volatile items including fuel - and holiday travel was unchanged at 5.5 percent, while the monthly trimmed mean measure fell from 5.6 percent to 5.4 percent.

Officials have kept policy rates on hold for the last four months, reflecting their assessment that inflation will return to the target range over the next two years, partly in response to earlier policy tightening. With the increase in headline inflation today driven by fuel prices and not stronger underlying price pressure, officials will likely remain confident for now that the previous policy tightening is continuing to have the expected impact. Nevertheless, officials have also highlighted upside risks to their inflation forecasts and have advised that they are ready to tighten policy further if they consider price pressures are not moderating quickly enough.

Consumer prices in September are expected to edge higher, at a consensus 5.3 percent versus 5.2 percent in August and against 4.9 percent in July.

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.