Economic update: September quarter 2026

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A challenging economic environment, with Australia facing renewed inflationary pressures

The September quarter brought renewed challenges for the global and Australian economies, with persistent inflation, higher borrowing costs and geopolitical uncertainty continuing to influence financial markets, businesses and households.

While Australia's economy has demonstrated resilience, the latest figures suggest the road towards more stable economic conditions may be longer than anticipated. Inflation has picked up again, interest rates remain elevated and businesses are continuing to navigate rising operating costs and softer trading conditions.

As we move towards the end of 2026, the economic outlook remains mixed, with both opportunities and challenges for Australian households and businesses.

International developments: Global uncertainty continues

International economic conditions remain an important influence on Australia's economic outlook.

The International Monetary Fund's October 2026 World Economic Outlook forecasts global economic growth of 3.1% for 2026, before improving to 3.4% in 2027. However, the outlook remains vulnerable to geopolitical tensions, trade uncertainty, fiscal pressures and fluctuations in energy markets.

Ongoing international conflicts and uncertainty around global trade arrangements have the potential to disrupt supply chains, influence commodity prices and place further pressure on inflation. These developments are particularly relevant to Australia, given our reliance on international trade and exposure to global energy and commodity markets.

For Australian businesses, changes in overseas demand, exchange rates, freight costs and input prices can have a direct impact on profitability, even when those businesses operate predominantly in the domestic market.

Australian economy: Growth continues, but momentum is being tested

Australia's economy continued to grow through the first half of 2026, although there are signs that economic momentum is moderating.

The latest national accounts, covering the June quarter, showed the economy grew by 0.4% over the quarter and 2.1% over the year. While this demonstrates continued economic expansion, households and businesses are still feeling the effects of elevated living and operating costs.

The September quarter figures will provide further insight into the strength of the Australian economy, with attention focused on consumer spending, business investment and whether higher interest rates are beginning to have a more significant impact on economic activity.

For now, the Australian economy remains relatively resilient, but the balance between controlling inflation and maintaining sustainable economic growth is becoming increasingly important.

Inflation: An unwelcome increase

Inflation was one of the key economic concerns during the September quarter, with the latest figures showing renewed upward pressure.

According to the Australian Bureau of Statistics, annual headline inflation increased to 4.3% in the year to September 2026, up from 4.0% in August. Underlying inflation, measured by the trimmed mean, also increased to 3.6%.

Housing remained a significant contributor to inflation, increasing by 5.2% over the year. Transport costs were another major pressure point, rising by 8.7%, reflecting higher fuel and other transport-related expenses.

The September quarter Consumer Price Index increased by 1.3%.

These figures suggest that inflation remains stubbornly above the Reserve Bank of Australia's target range of 2% to 3%. While some price pressures have eased compared with previous years, the latest results highlight that the cost-of-living challenge is far from over.

For households, this means continued pressure on everyday expenses. For businesses, higher costs associated with wages, fuel, utilities, insurance and supplies continue to place pressure on margins.

Interest rates: Borrowers remain under pressure

The Reserve Bank of Australia has continued to face a difficult balancing act: bringing inflation under control without placing unnecessary pressure on economic growth and employment.

Following its September decision, the RBA cash rate target stands at 4.60%, with the latest inflation figures adding to concerns that price pressures may take longer to moderate.

The Reserve Bank's November monetary policy decision is scheduled for 3 November, making interest rates a key focus as the final quarter of the year begins.

For mortgage holders, businesses with existing debt and those considering borrowing for investment or expansion, the interest rate environment remains an important consideration.

Higher borrowing costs can affect household budgets, business cash flow and investment decisions. While the outlook for future rate movements remains uncertain, borrowers should avoid making financial decisions based solely on expectations of imminent rate reductions.

Employment and wages: Signs of a changing labour market

Australia's labour market has remained relatively strong, although there are emerging signs of moderation.

The unemployment rate increased to 4.7% in September, compared with 4.6% in August. The number of employed people also declined during the month, although trend employment continued to increase.

Wage growth has remained relatively steady. The latest Wage Price Index figures showed wages increased by 0.8% in the June quarter and 3.2% over the year.

For employees, wage increases are providing some support against higher living costs, although real purchasing power continues to be affected by inflation.

For employers, balancing wage expectations with rising operating expenses and maintaining profitability remains a challenge. Attracting and retaining skilled employees also continues to be an important consideration for many Australian businesses.

What does this mean for Australian businesses?

The September quarter highlighted the importance of financial discipline and forward planning for Australian businesses.

NAB's September quarter business survey painted a challenging picture, with business conditions falling into negative territory for the first time since September 2020. Although business confidence improved during the quarter, businesses continued to report pressure on profitability, trading conditions and operating costs.

For business owners, the current environment reinforces the importance of:

Monitoring cash flow: Regularly reviewing income, expenses, debt commitments and upcoming obligations can help identify potential pressure points early.
Reviewing costs and margins: Rising supplier, wage and operating costs can quickly erode profitability if pricing and budgets are not regularly reviewed.
Managing debt: Understanding borrowing arrangements, interest costs and repayment commitments is particularly important while interest rates remain elevated.
Planning ahead: Maintaining realistic budgets and cash flow forecasts can help businesses prepare for changing economic conditions.
Considering investment carefully: While economic uncertainty can make business owners cautious, well-planned investment in people, equipment, technology and productivity may create longer-term opportunities.

Looking ahead: What can we expect?

As we move into the final months of 2026, the Australian economic outlook will largely depend on the direction of inflation, the Reserve Bank's monetary policy decisions and the resilience of household and business spending.

International developments will also remain important, particularly movements in energy and commodity markets, global trade conditions and geopolitical events.

Although the economic environment remains challenging, Australia continues to have a number of underlying strengths, including a diverse economy, established international trade relationships and a relatively resilient labour market.

For households and businesses alike, the focus should be on remaining informed, maintaining financial flexibility and making considered decisions rather than reacting to short-term economic uncertainty.

At Robertson Scannell, we understand that changing economic conditions can have different implications for every individual and business. Our team is here to help you navigate those changes, review your financial position and plan confidently for the future.