Jan'26 CPI: Headline Stable as Underlying Creeps Higher

The Consumer Price Index (CPI) rose 3.8 per cent in the 12 months to January 2026. Annual inflation was unchanged from December, signalling that while headline inflation has stabilised, it remains above the Reserve Bank of Australia’s (RBA) target band.

Inflation has levelled out rather than continued to fall, with housing and electricity driving renewed pressure and underlying inflation ticking higher. While some components are clearly cooling, the January CPI report reinforces the message that the final leg back to target will be slow and uneven keeping the RBA cautious in the months ahead.

Meanwhile, as headline inflation remained unchanged, underlying inflation measures point to renewed pressure. The trimmed mean rose to 3.4 per cent in the 12 months to January, up from 3.3 per cent in December underscoring that inflation pressures are becoming slightly broader across the basket. The uptick in trimmed mean inflation will be closely watched by the RBA, as it strips out large price movements such as electricity and provides a clearer read on persistent inflation dynamics.

Monetary Policy Implications

Headline inflation has stabilised and discretionary pressures, particularly in travel, are easing, but housing costs remain elevated and underlying inflation has edged higher, moving further from the RBA’s 2–3 per cent target.

The uptick in trimmed mean inflation highlights the uneven disinflation process and raises the risk that inflation remains above target without sufficiently restrictive policy. 

While the RBA may still see medium‑term progress, the data reinforces a hawkish bias. We expect the Bank to hold in March with firmer communication, with May emerging as the next live meeting as policymakers gain greater clarity on quarterly trimmed mean inflation and assess upside risks to the prolonged hold outlook. We could potentially be staring at another rate hike in less than six months time.

CPI Movers and Shakers

Housing inflation accelerated to 6.8 per cent in the year to January, driven by higher electricity, rent and new dwelling costs. Electricity prices surged following the exhaustion of Commonwealth and state rebates, inflating headline outcomes. Excluding rebates, electricity prices rose a more modest 4.5 per cent, indicating that recent volatility overstates underlying momentum. With rents and construction costs still elevated, housing inflation remains a key policy concern.

Food and non‑alcoholic beverage inflation eased to 3.1 per cent, while prices for meals out and takeaway rose 3.9 per cent, reflecting ongoing wage and input cost pressures and signalling persistent services inflation.

Recreation and culture inflation meanwhile slowed to 3.7 per cent, driven by easing travel costs. Domestic holiday travel and accommodation inflation moderated sharply, suggesting continued normalisation and reduced pressure on discretionary services prices, following the end of the holiday season.