Hot Inflation Figure in Jan Made another Rate Hike “Inevitable”
Australia’s Consumer Price Index (CPI) increased 3.8% year-on-year to January 2026, unchanged from December but marginally above expectations of 3.7%. More concerning for policymakers, the trimmed mean measure — the Reserve Bank of Australia’s preferred gauge of core inflation — edged up to 3.4% from 3.3%, reinforcing market expectations of a possible rate increase as early as May.
Housing Drives Inflation Higher
Housing was the primary driver of annual price growth, rising 6.8% over the year, accelerating from 5.5% in December. The sharp lift was largely due to electricity prices, which jumped 32.2% as federal Energy Bill Relief Fund (EBRF) rebates and state subsidies rolled off. Rental costs increased 3.9%, while prices for new dwellings rose 3.5%, compounding upward pressure across the sector.
Pressure Mounts on the RBA
Both headline and underlying inflation remain comfortably above the RBA’s 2–3% target range. After lifting the cash rate by 25 basis points in February to 3.85%, the central bank indicated a pause until at least May. However, economists caution that persistent inflation across housing, hospitality, and food sectors leaves limited scope for patience. Judo Bank adviser Warren Hogan suggested the RBA risks falling “behind the curve,” while BetaShares economist David Bassanese warned the January data weakens hopes for mortgage holders seeking relief.
The Road Ahead
The RBA’s next meeting is scheduled for March 17, though consensus expectations point to rates remaining steady until updated quarterly CPI data is released in late April. Bendigo Bank economist David Robertson highlighted the April 29 quarterly CPI as the critical input ahead of the May decision. Without a clear moderation in underlying inflation, another rate hike appears increasingly likely — a scenario described by some commentators as close to inevitable.
