Cautious tone precedes Wednesday CPI print
Commonwealth Bank is not overly optimistic that tomorrow’s inflation data will cool the heads of the hawkish policymakers gunning for a cash rate rise next week.
The bank expects trimmed mean inflation, which is the Reserve Bank of Australia (RBA)’s preferred inflation metric for setting monetary policy, to have risen by 0.9% quarter on quarter in the December 2025 quarter.
This would equate to 3.3% annually, materially above the previous quarter’s flat 3% increase.
While the quarter-on-quarter figure is slightly lower than the 1% rise seen in the September quarter, in CBA economists’ words, “it remains well above the pace consistent with the RBA achieving its inflation target”.
“With the RBA focused on the medium‑term inflation outlook, it will be paying close attention to what the data reveals about underlying inflationary pressures,” said the bank. “In our view, this release is likely to confirm that these pressures remain strong.”
Put simply, CBA expects the RBA to hike the cash rate by 25 basis points when the Monetary Policy Board convenes next Tuesday, although this will hinge on “both the size and composition of the inflation print, as well as the RBA’s assessment of the broader economic environment”.
The latest jobs data, which revealed a far lower unemployment rate than previously assumed, has created even more justification for the RBA to hike rates next week.
NAB is predicting as many as two cash rate hikes could be on the agenda in the first half of 2026, while Westpac and ANZ have kept their forecast on hold at 3.6% for the moment.
More CBA predictions
Housing inflation is estimated at 0.3% month on month in December on a seasonally adjusted basis, driven by solid increases in new dwelling costs and rents.
New dwelling costs likely rose 0.4% month on month, down slightly from 0.5% in November, lifting annual new dwelling inflation to 3.3% and the six‑month annualised rate to 5.9%.
Rents are expected to rise 0.4% month on month, slightly below November’s 0.5%, with tight rental markets and low vacancy rates maintaining upward pressure.
Electricity prices are expected to be flat in December, ahead of a sharp rise in January 2026 when federal subsidies expire.
Market services inflation, a key gauge of domestically driven, wage‑linked pressure, is expected to ease to 0.2% month on month in December, with the annual rate steady at 3.1%.
Insurance and motor vehicle maintenance and repair inflation are both expected to slow to 0.3% month on month, while dining out inflation is estimated at 0.2%.
Medical and hospital services prices are expected to fall 0.6% month on month due to expanded bulk‑billing incentives, while overall transport inflation should ease on lower fuel and softer vehicle‑related costs.
