The Australian Bureau of Statistics reported that Australia’s CPI rose 4.0% year on year in August, a three-month high, led by a 5.7% increase in housing costs alongside higher electricity and new home construction costs. The trimmed mean measure of underlying inflation is expected to hold at 3.6%. Ahead of the release, Westpac had forecast the Reserve Bank of Australia could raise rates again in November to counter persistent inflation pressures.

Markets widely expect the Reserve Bank of Australia to lift the cash rate to 4.6% at its September meeting. If implemented, the move would leave Australia with the second-highest policy rate among advanced economies, behind Iceland. Australia’s core inflation rate stands at 3.6%, one of the highest in the developed world, underpinning expectations of another increase.

Australia’s final 2025-26 budget outcome shows the deficit narrowed by about A$6 billion compared with the May projection. The improvement reflects A$1.4 billion less in government spending and A$4.6 billion more in tax receipts. Markets broadly expect the Reserve Bank of Australia to raise rates by 25 basis points on Tuesday to 4.60%, a 15-year high.

U.S. President Donald Trump has threatened to ban diesel exports, citing record domestic fuel prices and the war in Iran. In Australia, diesel has risen 7% to nearly $3 a litre and national reserves hold just 32 days of supply. The United States, the world’s largest diesel exporter, ships about 1.2 million barrels a day—mainly to Latin America and Europe—helping offset shortages linked to the prolonged closure of the Strait of Hormuz and bans on refined-fuel exports by Russia and China.

Market pricing for a Reserve Bank of Australia rate hike next Tuesday has risen from 72% at the start of the month to 88% as inflation stays high and the Middle East conflict keeps oil and fuel prices elevated. Some economists say the RBA could raise rates again in September and November, potentially delivering back-to-back moves to curb persistent inflation. They also say the central bank could even consider a larger one-off increase of 40 or 50 basis points.

Australia’s unemployment rate rose unexpectedly to 4.6% in August, above forecasts of 4.5%. Full-time employment fell by 6,000, while the participation rate increased to 67.1%. The figures were released ahead of the Reserve Bank of Australia’s interest-rate decision next week. RBA Governor Michele Bullock has said unemployment would need to rise into a 4.5% to 5% range to help ease inflation pressure.

Middle East conflict has tightened global oil trade, driving up oil prices and lifting petrol and diesel costs in Australia, with unleaded petrol reaching $2.30 a litre in some areas and diesel nearing $3 a litre. The Reserve Bank of Australia has raised rates three times in 2026, taking the cash rate from 3.60 per cent at the start of the year to 4.35 per cent, and the four big banks expect it to rise again to 4.60 per cent by year-end. Higher fuel prices and interest rates are increasing mortgage and living costs for households, while consumer spending has not shown a clear pullback and inflation has been slow to ease.

Iran-backed Houthi forces in Yemen took control of the strategic Red Sea town of Mocha on Thursday, which sits near the Bab al-Mandeb strait linking Asia and Europe via the Suez Canal and handles the transport of millions of barrels of oil each day. The development has heightened global concerns about shipping security. It could also further expand Iran’s influence over a key international waterway.

Australia’s headline inflation eased slightly to 3.5% in July, but it remains well above the Reserve Bank of Australia’s 2–3% target band. Core inflation, measured by the trimmed mean, held at 3.6% and was also higher than forecasts. RBA officials have reiterated the need to return inflation to the target range, lifting market expectations of a fourth rate rise later this month. If the cash rate is lifted again, it could reach a 15-year high.