Australia’s inflation pulse stayed stubbornly high in January, strengthening the case for another Reserve Bank (RBA) rate hike as early as May and keeping pressure on already‑stretched households.
The latest Monthly Consumer Price Index (CPI) from the ABS shows headline inflation rose 3.8% in the 12 months to January 2026, unchanged from December.
Housing was the biggest driver, up 6.8% year-on-year, followed by food and non-alcoholic beverages (+3.1%) and recreation and culture (+3.7%). Trimmed mean inflation – RBA’s preferred core measure – edged up to 3.4%, from 3.3% in December.
On a monthly basis, the CPI rose 0.4% in original terms and 0.5% seasonally adjusted, with electricity and clothing and footwear doing much of the damage.
In a Westpac analysis, senior economist Justin Smirk (pictured left) said the January print was “a touch stronger than expected, with minimal risk to our March quarter estimates,” adding that “electricity and garments & footwear boosted the January CPI more than expected.”
Goods and services inflation are now running at similar paces. Annual goods inflation lifted to 3.8%, driven largely by a 32.2% surge in electricity prices over the year. Services inflation eased slightly to 3.9%, with rents up 3.9% and medical and hospital services up 4.2%.
Domestic cost pressures remain particularly intense. Non‑tradables inflation, which covers largely home‑grown costs such as housing, education and many services, climbed to 4.9% in the 12 months to January, far outpacing tradables inflation at 1.9%, where globally traded items like fuel, clothing, and many food products sit.
Financial markets and economists see the data piling pressure on RBA. Three of the big four banks – CBA, Westpac, and NAB – all forecast a further 0.25 percentage point hike in May, which would take the cash rate to 4.1% by the end of 2026. ANZ remains the outlier, still expecting no further moves after February’s increase.
Canstar data shows a second hike would add another $90 a month to repayments on a $600,000, 25‑year owner‑occupier mortgage, taking the total hit from two 2026 hikes to $180 a month if fully passed on by lenders.
“RBA won’t be popping the champagne over this result,” Canstar.com.au’s data insights director, Sally Tindall (pictured), said. “Headline inflation might be steady, but at an annual rate of 3.8% it is nothing to crow about, while core inflation continues to move in the wrong direction.
“This makes a May rate hike feel less like a possibility and more like a probability,” Tindall said, adding that “While the best time to renegotiate your mortgage might have been in the past, the second best time is today.”
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