US inflation is easing. Australia has the harder problem

US inflation remains too high, but the underlying picture is considerably better than Australia's.

The latest US Consumer Price Index rose 3.4% over the year to August, with prices increasing 0.4% during the month. Gasoline prices rose 3.9% and accounted for more than one-third of the monthly increase. But core inflation — excluding food and energy — was only 2.4% annually.

The Federal Reserve's preferred PCE measure tells a slightly less comfortable story. Headline PCE inflation was 3.4%, while core PCE remained at 3.0%. In August alone, core PCE rose 0.2%.

That leaves US inflation above the Fed's 2% goal, but underlying inflation has moved substantially closer to target.

Australia's problem looks harder.

Australian headline inflation reached 4.0% in August, while trimmed mean inflation remained at 3.6% for a third consecutive month. Importantly, non-tradables inflation — prices more influenced by domestic conditions — was still 4.5%.

Energy has pushed up inflation in both economies, but the Australian shock has been much larger. US gasoline prices rose 3.9% in August. Australian automotive fuel prices jumped 14.8% in one month and were 13.5% higher over the year. Electricity prices were also up 13.2% annually.

The monetary-policy response is consequently similar but not identical. The Federal Reserve raised its target range in September to 3.75–4.00%, while the RBA lifted Australia's cash rate to 4.60% two weeks later. Both central banks judged inflation too high.

The complication is employment.

US payrolls increased by just 29,000 in September, with unemployment at 4.2%. Australian unemployment is already 4.6%.

Both central banks therefore confront an increasingly difficult combination: inflation above target while labour markets lose momentum.

But Australia's starting position is worse. US core CPI has fallen close to 2%; Australia's preferred underlying measure remains well above the RBA's 2–3% target band.

The next phase of the inflation fight is therefore less about whether headline energy prices rise or fall — and more about whether those shocks spread into the broader price system.

BENCHMARK ANALYTICS | INFLATION US inflation versus Australia Both economies face energy inflation and softer labour markets — but Australia's underlying inflation problem is larger. UNITED STATES 3.4% Headline CPI AUSTRALIA 4.0% Headline CPI US CORE CPI 2.4% Ex food & energy AUSTRALIAN TRIMMED MEAN 3.6% Underlying inflation The energy shock US gasoline — August m/m +3.9% Australian automotive fuel — August m/m +14.8% Australian electricity — annual +13.2% Central banks are still tightening 3.75–4.00% US Fed funds target 4.60% RBA cash rate Meanwhile, labour markets are cooling US September payroll growth +29,000 US unemployment 4.2% Australian unemployment 4.6% The key difference: US core CPI has fallen close to the Fed's 2% objective. Australia's trimmed mean inflation remains well above the RBA's 2–3% target band. Both central banks must now manage inflation while labour markets lose momentum. Sources: US Bureau of Labor Statistics; Bureau of Economic Analysis; Australian Bureau of Statistics; Federal Reserve; Reserve Bank of Australia. Core CPI and trimmed mean use different methodologies and are not directly identical measures.