Headline CPI or the trimmed mean? Which inflation number matters

Two numbers from one release

The consumer price index measures the price of a basket of goods and services Australian households buy. The headline inflation rate is the change in that whole basket over the past year.

The trimmed mean is calculated from the same prices. Each period, the ABS ranks every item by how much its price changed, removes the 15 per cent of the basket with the largest rises and the 15 per cent with the largest falls, and averages the rest.

Why remove anything?

Some prices jump around for reasons that say little about inflation’s direction. Petrol follows oil prices and the dollar. Fruit and vegetables follow the weather. Government rebates on electricity bills can cut the headline figure for a few months and then add it back when they end.

Trimming the extremes strips out those one-off swings and leaves a steadier read of how prices are moving across the economy. That is what economists mean by underlying inflation.

What the Reserve Bank watches

The Reserve Bank’s target is for inflation to average between 2 and 3 per cent over time. It judges progress mostly by underlying inflation, and the trimmed mean is its preferred measure. When headline inflation falls because of a temporary subsidy but the trimmed mean does not, the Bank is unlikely to treat the problem as solved.

So when the two diverge, the trimmed mean is usually the better guide to what the Bank will do next, and therefore to interest rates, bond yields and the dollar.

Monthly figures need care

The ABS has published a full monthly CPI since late 2025, replacing the narrower monthly indicator. Monthly figures arrive sooner than the quarterly ones but are noisier: a single month can move on a few volatile items. Look at the year-on-year rate and at several months together before reading much into one release.

FinVolio shows the headline and trimmed mean rates side by side, and the calendar shows when the next CPI is due.