Inflation drop on the cards but rate pain to persist

Andrew Brown |

Seasonal price rises in fruit and vegetables are expected to have fuelled inflation in January.
Seasonal price rises in fruit and vegetables are expected to have fuelled inflation in January.

Inflation levels are tipped to ease slightly, but it’s unlikely that will make the Reserve Bank take interest rate hikes off the cards.

The first inflation figures for 2026 will be released by the Australian Bureau of Statistics on Wednesday, with economists predicting a small downturn for January.

Headline inflation, which sits at 3.8 per cent, is tipped to trend down to 3.6 per cent.

Swimmers seek the shade the Brighton Beach Boxes in Melbourne
A small CPI fall is likely since January is usually a slower month for inflation, an analyst says. (Michael Currie/AAP PHOTOS)

However, the trimmed mean, which removes volatile price swings, is expected to remain steady at 3.3 per cent.

The trimmed mean is the preferred measure of the inflation by the Reserve Bank, which aims for a target of between two and three per cent.

A small downturn was likely due to January traditionally being a slower month for inflation growth, Westpac senior economist Justin Smirk said.

However, there would be some pressure points.

“We expect food to remain inflationary, with a solid contribution from the seasonal rise in fresh fruit and vegetables and non-alcoholic beverages,” he said.

“Health is also boosting our estimate with a 3.2 per cent increase in hospital and medical services.”

A stock image of a residential electricity bill in Brisbane
Month-on-month electricity prices are tipped to have risen as much as five per cent in January. (Jono Searle/AAP PHOTOS)

The biggest contributor to inflation for the month will likely be energy, with electricity rebates from governments coming to an end in December.

Month-on-month electricity prices are tipped to have risen as much as five per cent in January after cost-of-living measures wound up.

A fall in the cost of fuel and holiday travel is also expected to alleviate some inflationary pressures.

The stubborn rates of inflation have caused the Reserve Bank’s board to consider further interest rate rises.

The bank lifted the cash rate to 3.85 per cent in February, with further rises expected later in 2026.

The rise of inflation has also led to a decline in real wages for the first time in more than two years.

AAP