Australia Inflation January 2026: CPI Forecasts & Electricity Price Impact
- Australia’s inflation outlook for January is proving complex, with economists offering divergent forecasts ahead of the official release.
- Westpac anticipates a January CPI increase of 0.1 per cent, which would ease the annual pace from 3.8 per cent to 3.6 per cent.
- However, ANZ presents a more optimistic outlook, forecasting a 0.1 per cent monthly decline in headline CPI, bringing the annual inflation rate down to 3.4 per cent.
Australia’s inflation outlook for is proving complex, with economists offering divergent forecasts ahead of the official release. While a moderation in headline price pressures is generally expected, uncertainty persists regarding the strength of underlying inflation and the impact of shifting government policies.
Westpac anticipates a CPI increase of 0.1 per cent, which would ease the annual pace from 3.8 per cent to 3.6 per cent. The bank’s analysis suggests a 0.3 per cent lift in the trimmed mean, maintaining annual core inflation at 3.3 per cent. This forecast implies a relatively stable underlying inflationary environment.
However, ANZ presents a more optimistic outlook, forecasting a 0.1 per cent monthly decline in headline CPI, bringing the annual inflation rate down to 3.4 per cent. ANZ also expects trimmed mean inflation to slow to 3.2 per cent year-on-year, a further indication of easing price pressures. Commonwealth Bank (CBA) falls between these two predictions, projecting an annual CPI of 3.7 per cent and trimmed mean inflation of 3.3 per cent – a modest decrease from ‘s figures.
A key factor influencing the CPI will be the impact of electricity prices. The cessation of federal energy bill relief measures at the end of is expected to contribute to a significant increase in household electricity bills. The federal Energy Bill Relief Fund officially ended on , with no extensions announced, removing up to $150 in rebates for eligible households and small businesses.
Westpac estimates a 5.0 per cent monthly increase in electricity prices as a direct result of these rebates ending. This surge is expected to be partially offset by declines in other areas, including auto fuel, holiday travel, and garments. Specifically, Westpac forecasts a 5.9 per cent fall in holiday travel and accommodation and a 3.0 per cent decline in auto fuel prices.
Beyond the headline figures, the Reserve Bank of Australia (RBA) will be closely scrutinizing underlying inflation. According to Commonwealth Bank senior economist Trent Saunders, the RBA will be “focused on the underlying inflation impulse and what it signals about the persistence of recent price pressures.” The volatility of certain items, particularly electricity, will also draw attention.
Additional price increases are anticipated in hospital and medical services (3.2 per cent) and fruit and vegetables (3.3 per cent). These gains, however, are expected to be largely counterbalanced by the aforementioned declines in fuel and travel costs.
ANZ emphasizes the importance of the monthly trimmed mean as a leading indicator for the quarterly outturn, stating they will be “watching the release closely, given the tendency for the first month of the quarter trimmed mean to provide a solid guide to the quarterly outturn.” Westpac cautions that discrepancies can arise between monthly and quarterly trimmed mean measures due to technical factors, reinforcing their preference for the quarterly series.
The composition of inflation remains a central concern for policymakers. Westpac chief economist Luci Ellis has previously highlighted the significant role of administered prices – those determined by government policies – in recent inflationary trends, particularly in sectors like utilities. This suggests that monetary policy may have limited influence over these price increases.
The wide range of forecasts underscores the uncertainty surrounding the inflation data. While all three major banks anticipate some easing in the annual headline rate, the divergence in their predictions highlights the difficulty in accurately assessing the current economic landscape. The interplay between falling fuel and travel prices and rising electricity and healthcare costs will be crucial in shaping expectations ahead of the March quarter data and the RBA’s subsequent policy decisions.
The recent surge in electricity prices, driven by the removal of subsidies in Queensland and Western Australia, contributed to a 21.5% increase in electricity costs. This factor played a significant role in pushing inflation to 3.8% in the year to , increasing the likelihood of a potential interest rate hike by the RBA.