SYDNEY, Jan 27, 2026, 18:56 (AEDT)
- Commonwealth Bank expects underlying inflation to remain high, leaving the door open for a rate hike in February
- On Wednesday, ABS will release December CPI and December-quarter data, just ahead of the RBA’s meeting on Feb 2–3
- Westpac and ANZ predict easing inflation; both investors and borrowers focus on the “trimmed mean” measure
Australia’s interest-rate outlook narrowed sharply Tuesday, after Commonwealth Bank signaled underlying inflation could come in hotter than expected. The update revived the possibility of a rate hike from the Reserve Bank of Australia as soon as February.
The inflation report set for Wednesday is the final key data before the RBA’s Feb. 2–3 meeting, arriving as household budgets are under pressure. Markets have swung sharply between “hold” and “hike” bets, with tiny shifts in inflation numbers tipping the scales.
The trimmed mean—the inflation gauge that excludes the most extreme price changes—is the key focus. Investors keep a close eye on it since it usually reflects ongoing price pressures more reliably than the headline CPI, which can jump around due to fuel costs or seasonal factors.
Commonwealth Bank’s economics team expects the quarterly trimmed mean to climb 0.9% in the December quarter, noting this pace remains “well above” what would align with the RBA’s goal of bringing inflation back to 2–3%. They also predict annual trimmed-mean inflation will rise to 3.3%, with headline inflation hitting 3.8% year-on-year for December—higher than the 3.6% consensus they referenced. 1
Economists and traders see the upcoming CPI report as a critical juncture. Betashares chief economist David Bassanese described it as a “make or break” for mortgage holders, predicting a 0.8% quarterly trimmed mean increase that “should be enough to keep the RBA sidelined in February.” But if inflation runs hotter, that could force the Reserve Bank into action. VanEck’s Jamie Hannah noted the earlier slowdown might “keep the rate hike wolves at bay for now.” Meanwhile, State Street Investment Management APAC economist Krishna Bhimavarapu cautioned that volatility may linger as stimulus fades and the central bank waits on clearer signals. 2
Borrowers feel the impact sharply. Since most home loans carry variable rates, an RBA rate hike usually translates swiftly into higher repayments. Canstar calculates that a 0.25 percentage point increase would tack on roughly A$90 monthly for a A$600,000 mortgage, A$112 for A$750,000, and A$150 on a A$1 million loan.
Markets are holding steady as they await the inflation figures. Australian equity futures suggest a quiet start, with investors bracing for data that could reshape expectations not only for the next RBA move but also the trajectory beyond. 3
The unease isn’t confined to trading floors. Local media are portraying the upcoming decision as a potential strain on household and business budgets, with inflation data taking center stage. 4
The downside risk to rate-hike bets is straightforward: inflation data can be volatile, and a weaker trimmed-mean reading would challenge the view that price pressures are picking up again. Many forecasters are calling for a quarterly trimmed mean around 0.7%–0.8%; if it comes in near the lower bound, the RBA might decide to hold its ground and wait it out.
The ABS last put annual CPI inflation at 3.4% in November, with trimmed-mean inflation at 3.2%, both still above the RBA’s preferred range. The bureau has now made the monthly CPI its main headline measure. It’s set to release December CPI figures on Wednesday, Jan. 28, along with December-quarter tables derived from the monthly data. 5
The RBA’s cash rate target stands at 3.60%, per the central bank’s latest release. Updates come at 2:30 p.m. following board meetings, with the next call expected after the Feb. 2–3 session. 6
The banks remain divided, and so is the market. Wednesday’s trimmed-mean figure — just a few tenths in either direction — will probably determine if the RBA holds steady or moves to tighten once more, and how fast that decision filters down to mortgages and asset prices.
