How good is the RBA at hitting the inflation target?
Australia’s monetary policy framework is built around an inflation target. The RBA seeks to keep consumer price inflation between 2% and 3%, while also pursuing full employment.
Its principal tool for influencing inflation is the cash rate: higher interest rates generally restrain spending and inflationary pressure, while lower rates provide support to demand.
Recent experience shows the challenge. Over the four quarters to June 2026, headline inflation averaged 3.70%, with none of the four quarterly observations within the 2–3% band.
Trimmed mean inflation, which removes some unusually large price movements, averaged 3.33%, with only one of four quarters within the band.
Looking further back produces interesting insights. Since January 1996, headline inflation has averaged 2.69% — comfortably within the RBA’s target range. Yet inflation was actually between 2% and 3% in only 40 of 122 quarters, or 32.8%.
This highlights an important distinction between average inflation and inflation stability. Since 1996, headline inflation has averaged 2.69%, but its standard deviation has been 1.52 percentage points. Over the past decade it was even higher, at 1.89 percentage points.
The long-run average may look remarkably close to the 2-3% target, but the path taken to get there has been considerably more volatile.
| Headline inflation | |||||
| Metric | Last year | Last 5 years | Last 10 years | Last 20 years | Since 1 Jan 1996 |
| Number of quarters | 4 | 20 | 40 | 80 | 122 |
| Number of quarters within band | 0 | 4 | 8 | 23 | 40 |
| % within band | 0.0% | 20.0% | 20.0% | 28.8% | 32.8% |
| % outside band | 100.0% | 80.0% | 80.0% | 71.3% | 67.2% |
| Average | 3.7 | 4.38 | 3.01 | 2.77 | 2.69 |
| Maximum | 4.1 | 7.9 | 7.9 | 7.9 | 7.9 |
| Minimum | 3.2 | 2.1 | -0.3 | -0.3 | -0.3 |
| Standard deviation | 0.34 | 1.67 | 1.89 | 1.52 | 1.52 |
| Average business expectation | 2.28 | 2.82 | 2.01 | 1.71 | 1.71 |
| Trimmed mean inflation | |||||
| Metric | Last year | Last 5 years | Last 10 years | Last 20 years | Since 1 Jan 1996 |
| Number of quarters | 4 | 20 | 40 | 80 | 122 |
| Number of quarters within band | 1 | 5 | 5 | 32 | 64 |
| % within band | 25.0% | 25.0% | 12.5% | 40.0% | 52.5% |
| % outside band | 75.0% | 75.0% | 87.5% | 60.0% | 47.5% |
| Average | 3.32 | 4.08 | 2.81 | 2.8 | 2.71 |
| Maximum | 3.6 | 6.8 | 6.8 | 6.8 | 6.8 |
| Minimum | 2.9 | 2.1 | 1.1 | 1.1 | 1.1 |
| Standard deviation | 0.27 | 1.32 | 1.57 | 1.23 | 1.04 |