Inflation drop on the cards but rate pain to persist
Inflation levels are expected to ease somewhat, but this is unlikely to lead to the Central Bank canceling interest rate hikes.
The first inflation figures for 2026 will be released by the Australian Bureau of Statistics on Wednesday, with economists predicting a small decline in January.
Headline inflation, currently at 3.8 percent, is estimated to drop to 3.6 percent.
However, the trimmed average, which eliminates variable price fluctuations, is expected to remain stable at 3.3 percent.
The trimmed average is the Federal Reserve’s preferred measure of inflation, aiming for a target of two to three percent.
Westpac senior economist Justin Smirk said a small decline was likely due to January being traditionally a slower month for inflation growth.
But there will be some pressure points.
“We expect food to remain inflationary, with a solid contribution from seasonal increases in fresh fruits and vegetables and soft drinks,” he said.
“Health also strengthens our forecast with a 3.2 percent increase in hospital and medical services.”
Energy will likely be the biggest contributor to inflation this month, and governments’ electricity discounts will end in December.
It is estimated that electricity prices increased by 5 percent on a monthly basis in January after the cost of living measures were lifted.
The decline in fuel and holiday travel costs is also expected to ease inflationary pressures.
Stubborn inflation rates have led the Federal Reserve board to consider further interest rate increases.
The bank raised the cash rate to 3.85 percent in February, with further increases expected in late 2026.
The rise in inflation caused real wages to fall for the first time in more than two years.
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