Energy and housing trends draw attention from economists
Commonwealth Bank has forecast that headline inflation will rise to 3.7% annually in the January 2026 print, driven primarily by the expiry of federal electricity subsidies.
The bank’s economics team expects headline inflation to increase 0.4% month-on-month on a seasonally adjusted basis, according to a report released by the bank on Monday.
On a non-seasonally adjusted basis, headline inflation is expected to increase 0.2% month-on-month.
“Higher electricity prices will underpin firm outcomes for headline inflation in January, with this partly offset by a fall in fuel prices in the month,” CBA economist Trent Saunders wrote.
The bank attributes the increase largely to electricity prices, which are expected to surge 16.3% in January following the end of federal subsidies on 31 December. Some households in Western Australia will continue to receive payments during January, meaning a further increase in electricity prices is likely in February as remaining rebates end.
Housing inflation is estimated to have jumped 2.2% month-on-month in January on a seasonally adjusted basis, up from 0.1% in December. Beyond electricity, the increase reflects an expected rise in new dwelling inflation to 0.4% month-on-month from 0.2% in December.
CBA expects the monthly measure of trimmed-mean inflation to increase 0.3% month-on-month and remain at 3.3% annually. Market services inflation is also expected to rise 0.3% month-on-month, with its annual growth rate increasing to 3.3%.
Transport costs are estimated to ease in January, driven by declining fuel prices and slower motor vehicle cost inflation, though this is partly offset by a rebound in motor vehicle maintenance costs.
The forecast comes as the Reserve Bank of Australia (RBA) recently raised the cash rate to 3.85%, citing persistent inflation pressures and a tight labour market that supports ongoing price growth. The central bank noted the labour market remains stable but capacity-constrained, reinforcing concerns that inflation could stay above the target range.
An International Monetary Fund (IMF) report also highlighted Australia’s strong economic management and growth rebound but warned that domestic inflation and global uncertainties remain key risks to a sustainable recovery.
CBA expects the Reserve Bank of Australia to raise the cash rate in May, noting that even slightly softer inflation outcomes would be unlikely to deter the board from proceeding with another increase.
The January outcomes align with CBA’s expectation that quarterly trimmed-mean inflation will reach 0.8% in the first quarter of 2026, slightly below the RBA’s central forecast of 0.9%.
The January inflation print is due next Wednesday, 25 February.
