CPI: Housing and energy costs lift but headline inflation flat, ABS January data shows

The first inflation data for the 2026 has arrived and is likely to increase pressure on the Reserve Bank to lift interest rates further.

What did the January CPI data reveal?

Releasing its first Consumer Price Index data for 2026, the Australian Bureau of Statistics reported headline inflation remained steady in the 12 months to January at 3.8 per cent.

Trimmed mean inflation had a slight rise from 3.3 to 3.4 per cent in the year to January.

The Reserve Bank prefers the trimmed mean as a measure of inflation because it removes volatile price swings.

What were the big price movers?

Housing was the largest contributor by sector to inflation, rising 6.8 per cent in January.

Food and non-alcoholic beverages increased by 3.1 per cent while recreation and culture went up by 3.7 per cent.

Electricity costs rose 32.2 per cent in the 12 months to January, compared to a rise of 21.5 per cent in the year to December.

The significant increase in energy costs was due to the end of state and federal rebates for power bills.

The Australian Bureau of Statistics said electricity prices only rose 4.5 per cent in the year to January if the impacts of the government rebates were excluded.

Why the case for a May RBA rate hike is strengthening

“Electricity prices were the largest contributor to the monthly increase in headline inflation, with this partly offset by a fall in fuel prices,” Commonwealth Bank economist Trent Saunders said.

“Importantly, even excluding these two volatile components, inflation remained firm at 0.4 per cent per month in January on a seasonally adjusted basis,” he said.

Other sectors in the economy were also supporting inflation, Saunders said. 

“The pickup in prices was supported by an unexpectedly strong rise in clothing and footwear, alongside a lift in market services inflation. Market services provide a key measure of wage-linked, domestically-driven inflation pressures,” he said.

Saunders said that there was now an increased chance that quarterly trimmed mean inflation reading, due in late April, would come in at 0.9 per cent rather than 0.8 per cent as predicted. 

“Importantly, quarterly underlying inflation is likely to be too strong to be consistent with the RBA’s objectives,” he said.  “This reinforces our expectation that the RBA will raise the cash rate by 25 basis points at its May meeting.”