Market chatter on inflation continues to build ahead of Wednesday’s consumer price index (CPI) release from the Australian Bureau of Statistics (ABS).
Despite persistent price pressures in recent months, consumers are starting to loosen their purse strings. The latest ANZ–Roy Morgan Consumer Confidence survey showed sentiment rose 3.5 points in the week of 20 April to 67.8 points.
Even so, the mood remains fragile. While confidence has ticked higher — despite heightened global uncertainty following the escalation of the conflict in the Middle East in early March — it is still sitting near historically low levels.
"The series is at its highest level since mid-March, but remains among the lowest readings since the series began in 1973," said Sophia Angala, an economist at ANZ.
She added that ANZ is expecting headline inflation to be up 1.4%, quarter-over-quarter, during Wednesday Q1 reading, thanks in part to rising fuel prices linked to the war. As a result, the bank maintained its forecast that the Reserve Bank of Australia (RBA) will raise the official cash rate (OCR) by 25 basis points during its May meeting on monetary policy.
"The weekly data tends to be pretty noisy," Ashwin Clarke, senior economist at CBA, told Australian Broker. "So far, spending has been resilient. But it remains to be seen whether that decrease in sentiment will translate into an actual sort of material decrease in spending in coming months."
He noted that, once adjusted for inflation, spending growth is relatively weak, up only around 0.4%, according to the firm’s March household spending insights.
"That's a decrease in pace compared to mid last year when it was pretty strong," the economist said. "We don't think that that decline in spending has been enough to have an impact on decreasing inflation. In particular, we've seen a pretty large decrease in consumer sentiment; we've seen a pretty large decrease in business sentiment."
CBA expects trimmed mean inflation to rise around 0.9% in the upcoming print, driven in part by higher oil prices. "And that's still too high," Clarke said.
At the same time, policymakers are weighing inflation risks against the growing threat of slower economic growth.
"We do expect there to be inflationary pressure from the increase in oil prices and the pass-through of that to consumer prices," Clarke explained. "But at the same time, the RBA board will be worried about the downside risks associated with economic growth."
CBA also maintained its forecast that the RBA will increase interest rates by 25 basis points in its upcoming meeting.
Inflationary pressures, meanwhile, have shown only modest signs of easing since the start of the year. February's headline CPI increased 3.7%, year-over-year, down from 3.8% in the 12 months leading up to January. Trimmed mean inflation — which is widely viewed by economists as a better gauge of underlying price pressures because it strips out volatile items — remained steady at 3.3%, year-over-year. Housing was the largest driver of price pressures, rising 7.2% annually.
Even so, these marginal improvements follow a period of persistent inflation. January's headline CPI print was 3.8%, the same as December, while trimmed mean inflation edged up to 3.4%, from 3.3% the month earlier. That's on top of increases in both headline CPI and trimmed mean inflation in December's print.
The RBA has already lifted the benchmark interest rate twice in 2026, taking it to 4.10%, thanks to ongoing inflationary pressures. Markets are now pricing in the risk of further tightening, a view echoed by banks lifting fixed mortgage rates, which is often a signal that higher borrowing costs are coming. While a rate reduction is not expected during the May meeting, hopes are rising that policymakers will at least pause rather than press ahead with another rate hike. If rates rise, borrowing power will tighten further for mortgage holders, compounding pressure in an already undersupplied housing market.
