CANBERRA, 25 February 2026 – Fresh data released today by the Australian Bureau of Statistics (ABS) has sent shockwaves through financial markets, revealing that underlying inflation in Australia has climbed to a 16-month high. The figures have immediately intensified pressure on the Reserve Bank of Australia (RBA) to consider further interest rate hikes to bring the economy back within its target range.
January 2026 Inflation Data: Key Findings
According to the latest monthly Consumer Price Index (CPI) indicator, headline inflation held steady at 3.8% in the 12 months to January 2026. While the headline figure remained unchanged from December 2025, the “trimmed mean”—the RBA’s preferred measure of core inflation which filters out volatile price swings—rose to 3.4%, up from 3.3% the previous month.
The data suggests that despite the RBA’s recent efforts to cool the economy, including a cash rate increase to 3.85% earlier this month, inflationary pressures remain “stickier” than economists had anticipated. Housing costs continue to be the primary driver of annual inflation, alongside rising prices in the services sector.
Economic Indicators and Historical Context
The current inflationary environment marks a significant departure from historical averages. While the CPI has fluctuated significantly since 1948, the recent persistence above the RBA’s 2–3% target band is causing concern for both policymakers and households.
| Measure | Period (Year to Jan 2026) | Previous Period (Year to Dec 2025) |
|---|---|---|
| Headline CPI | 3.8% | 3.8% |
| Trimmed Mean (Core) | 3.4% | 3.3% |
| Monthly Change (Original) | 0.4% | N/A |
Market Reaction and Interest Rate Outlook
Following the release of the “hotter than expected” figures, major Australian banks, including Commonwealth Bank, Westpac, and NAB, have adjusted their forecasts. Financial traders are now heavily betting on a further interest rate hike in May 2026, which would likely take the official cash rate to 4.1%.
The RBA’s latest economic forecasts suggest that headline inflation could peak at 4.2% by the June quarter of this year, with underlying inflation reaching 3.7%. This trajectory has led many analysts to describe another rate hike as “inevitable” if the trend does not reverse in the coming months.
Public Sentiment and Cost of Living
Public insights reflect a growing frustration among Australian consumers. On social media platforms and economic forums, many Australians have noted that the “effective” inflation rate feels much higher for those spending a larger share of their income on housing and essential services. Discussions have shifted from temporary price spikes to a “cost of greed” crisis, with some pointing to record profits in the energy and supermarket sectors as contributing factors to the prolonged pressure on family budgets.
Frequently Asked Questions
What is the current inflation rate in Australia?
As of 25 February 2026, the headline inflation rate stands at 3.8% for the 12 months to January 2026. However, core inflation (trimmed mean) has risen to 3.4%.
Why is the RBA concerned about the “trimmed mean” inflation?
The trimmed mean is the RBA’s preferred measure because it removes the most extreme price rises and falls (such as temporary fuel spikes or seasonal fruit prices), providing a clearer picture of the underlying trend in the economy.
When is the next RBA interest rate decision?
The RBA meets regularly to review the cash rate. Following today’s data, market analysts are closely watching the May 2026 meeting, with many predicting a 0.25% increase to 4.1%.
What are the main drivers of inflation right now?
The Australian Bureau of Statistics identifies housing as the largest contributor to annual inflation. Other significant factors include rising costs in the services sector and persistent cost-of-living pressures across essential goods.