Australian Inflation: January CPI Signals Potential Rate Hike
Australia’s January Consumer Price Index (CPI), released this Wednesday, is anticipated to reveal persistent inflation despite some seasonal tempering. Economists from Commonwealth Bank of Australia and Westpac both predict a 0.4% month-on-month increase (seasonally adjusted) in headline inflation.
Electricity Prices Drive Inflationary Pressure
A key driver of this anticipated increase is the resurgence of electricity prices. Cost-of-living rebates are fading, causing bills to revert to underlying pricing levels. This impact is expected to be partially offset by declines in automotive fuel, holiday travel, accommodation, garments, and communications. Lower fuel prices are providing some cushion against the rising cost of electricity.
Core Inflation Remains Firm
The annual inflation rate is forecast to land between 3.6% and 3.7%, a slight easing from December’s figures but still exceeding the Reserve Bank of Australia’s (RBA) 2–3% target band. Underlying measures are similarly holding steady. Both banks estimate the trimmed signify rose 0.3% in January, maintaining the annual pace at 3.3% year-on-year.
What is the Trimmed Mean?
RBA Rate Hike Still on the Cards
Despite a potential slight moderation in core inflation, a rate hike from the RBA in May remains likely. CBA argues that even a slight undershoot of the RBA’s quarterly trimmed mean forecast wouldn’t be enough to deter further tightening, given the Board’s recent signaling and revisions to economic forecasts.
Focus on the Trimmed Mean
Given the volatility of electricity prices impacting the headline figure, market attention will be heavily focused on the trimmed mean as a more reliable indicator of persistent inflation. Westpac notes the six-month annualised rate may ease to 3.4% from 3.7%, suggesting a gradual slowdown in inflationary momentum.
Underlying Inflation Measures
CBA’s three-month-on-three-month trimmed mean measure is expected to soften slightly to 0.8% from 0.9%, aligning with a quarterly trimmed mean of 0.8% in the first quarter of 2026. While marginally below the RBA’s central forecast of 0.9%, this still indicates ongoing price pressures.
Frequently Asked Questions
What is the CPI?
The Consumer Price Index (CPI) is a measure of inflation published by the Australian Bureau of Statistics (ABS). It tracks the change in prices of goods and services purchased by Australian households.
Why is the trimmed mean important?
The trimmed mean excludes the most volatile price changes, offering a more stable measure of underlying inflation.
When will the January CPI data be released?
The January CPI data is due to be released by the Australian Bureau of Statistics on Wednesday at 11:30am Sydney time.
Did you know? The ABS publishes a monthly CPI indicator, providing a more timely, though less comprehensive, view of inflation than the quarterly CPI.
Stay informed about the latest economic developments. Read more about measures of consumer price inflation on the RBA website and explore the latest CPI data from the Australian Bureau of Statistics.
What are your thoughts on the potential for a May rate hike? Share your insights in the comments below!