CPI: RBA to weigh fresh inflation data after electricity rebates end

The year's first round of inflation figures will provide a clearer picture on whether the Reserve Bank's recent hike to the cash rate was a one-off or a sign of further increases to come.

Wednesday will see the release of inflation data for January, the first set since the Reserve Bank chose to hike interest rates to 3.85 per cent at the start of February.

Commonwealth Bank economists have tipped a slight reduction in the headline rate of inflation to 3.7 per cent in this week’s data.  Trimmed mean inflation, where volatile items are removed, is expected to remain unchanged at 3.3 per cent.

Both measures is are still expected to be above the Reserve Bank's target band of between 2 and 3 per cent.

Energy rebates come to an end

January's data follows the last of the energy rebates coming to an end, which will cause a bump in inflation.

“The RBA will be focused on the underlying inflation impulse and what it signals about the persistence of recent price pressures”, Commonwealth Bank Senior Economist Trent Saunders said in a preview note. “However, with significant swings expected in some volatile items, attention will also turn to these categories, especially electricity prices.”

The end of subsidies would be “partly offset by a fall in fuel prices”, Saunders said.

But even with inflation remaining steady, economists are still tipping further interest rate hikes with the Commonwealth Bank and NAB both tipping an increase to 4.1 per at the Reserve Bank's board meeting in May.

“At this stage, even if quarterly trimmed mean inflation comes in slightly softer than the RBA’s forecasts, that alone would be unlikely to deter the board from proceeding with another increase in the cash rate,” Saunders added.

Business spending expected to rise

This week will also see the release of capital expenditure figures, with a 0.7 per cent quarter-on-quarter growth in new investment likely to be confirmed on Thursday.

Wall Street investors are meanwhile expecting strong investment growth in information media and telecommunications industries after the US Supreme Court struck down President Donald Trump's global tariffs.