Firm January inflation keeps the RBA on a tightening footing, lifting May hike expectations and supporting the Australian dollar.
Summary:
-
Headline CPI 0.4% m/m; 3.8% y/y
-
Trimmed mean 3.4% y/y, above forecasts
-
Goods inflation firm; services still elevated
-
Housing major contributor
-
May hike odds increased
-
Separately, construction data weak
Australia’s January inflation data came in on the firm side of expectations, reinforcing the case for further tightening from the Reserve Bank of Australia and lifting the Australian dollar.
Figures from the Australian Bureau of Statistics showed monthly CPI rose 0.4% in January, easing from December’s 1.0% surge but above the 0.3% forecast. The annual pace held at 3.8%, slightly above expectations of 3.7%. More importantly for policymakers, core measures accelerated.
The trimmed mean rose 0.3% in the month, taking the annual rate to 3.4% from 3.3%, ahead of consensus. The weighted median measure also increased 0.3% month-on-month, leaving the annual pace at 3.6%. At roughly a 3.5–3.6% annualised rate, underlying inflation remains well above the RBA’s 2–3% target band.
Price pressures were broad. Housing costs climbed 6.8% year-on-year, food and non-alcoholic beverages rose 3.1%, while recreation and culture increased 3.7%. Goods inflation accelerated to 3.8% annually, while services inflation eased slightly but remained elevated at 3.9%. Excluding volatile items and holiday travel, domestic components such as rents and new dwelling costs showed ongoing strength.
Markets interpreted the data as strengthening the case for another near-term hike, with rate probabilities rising for May. Having already lifted rates this month in response to building price momentum late last year, the RBA faces little evidence of a meaningful slowdown in underlying inflation. The monthly data, while more volatile than quarterly prints, add to the sense that price pressures remain persistent.
The Australian dollar firmed following the release as traders priced in a higher terminal rate outlook.
Separately, fourth-quarter construction work done disappointed, falling 0.1% quarter-on-quarter against expectations for a solid rise. The weak construction figure may weigh modestly on GDP growth, but for now inflation dynamics appear to be dominating the policy narrative.
Overall, the data suggest inflation remains sticky, keeping the RBA on a tightening path despite pockets of softness in activity.
—
RBA 2026 dates. March is the next opportunity for a rate hike, and with such data, why not? Still, the RBA tells us they are wiaiting on quarterly inflation data as confirmation. They are a timid bunch.
This article was written by Eamonn Sheridan at investinglive.com.
