Sticky inflation to corner RBA into another hike
25 Feb 2026
A second cash rate hike is firmly on the cards following the latest round of CPI data, with core inflation rising to an annual rate of 3.4% in January.
While the RBA still puts more weight on the quarterly inflation data, which is not due out until the end of April, today’s figures point to persistent inflation pressures.
Headline inflation was steady at an elevated annual rate of 3.8%. While this figure has been skewed by the 32.2% p.a. rise in electricity costs, thanks to the end of the government rebates, trimmed mean inflation, which takes out much of the volatility, rose from 3.2% to 3.3% p.a. in the latest results.
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| Consumer Price Index (annual movement) | ||
|---|---|---|
| Month | Headline CPI% | Trimmed mean % |
| June 2025 | 1.9 | 2.9 |
| July 2025 | 3.0 | 3.1 |
| August 2025 | 3.2 | 3.1 |
| September 2025 | 3.6 | 3.2 |
| October 2025 | 3.8 | 3.3 |
| November 2025 | 3.4 | 3.3 |
| December 2025 | 3.8 | 3.3 |
| January 2026 | 3.8 | 3.4 |
Source: ABS Monthly Consumer Price Index.
CBA, Westpac and NAB all expect a hike in May
Three of the big four banks – CBA, Westpac and NAB – all believe the RBA will be forced to hike the cash rate again in May on the back of the next round of quarterly inflation results due out on 29 April.
ANZ, however, still expects the February RBA hike will be enough to turn Australia’s inflation woes around, predicting the cash rate will remain on hold for the foreseeable future.
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| Current big four bank cash rate forecasts | ||
|---|---|---|
| Bank | Forecast | Cash rate at end of 2026 |
| CBA | 1 x 0.25 in May | 4.10% |
| Westpac | 1 x 0.25 in May | 4.10% |
| NAB | 1 x 0.25 in May | 4.10% |
| ANZ | No further changes | 3.85% |
Impact of a further cash rate hike
For someone with a $600,000 mortgage and 25 years remaining, a second cash rate hike in May 2026 would increase their monthly repayments by $90. Across what would then be two hikes for the year, the total increase would be $180.
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| Impact of a further RBA hike on minimum monthly repayments | ||
|---|---|---|
| Debt owning | Hike in May | Across 2 hikes (Feb + May) |
| $600,000 | +$90 | +$180 |
| $800,000 | +$120 | +$240 |
| $1 million | +$151 | +$300 |
Source: Canstar. Notes: based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2026 at the RBA average existing customer variable rate. Calculations assume the RBA hikes the cash rate in May 2026 and banks pass on both the Feb and May hikes the month after.
Headline inflation steady, core inflation moving in wrong direction
Canstar.com.au’s data insights director, Sally Tindall, says, “The RBA won’t be popping the champagne over this result. Headline inflation might be steady, but at an annual rate of 3.8 per cent it is nothing to crow about, while core inflation continues to move in the wrong direction.”
“This makes a May rate hike feel less like a possibility and more like a probability.
“While the Board prefers to lean on the quarterly data, today’s numbers reconfirm inflation continues to be sticky. Services inflation did record a drop, but at an annual rate of 3.9 per cent, that’s not the kind of progress the RBA wants to see.
“The surge in electricity prices, following the end of government rebates, is a sharp reminder that some of the recent relief in headline inflation was temporary. Now that this support has disappeared, the true pressure on household budgets is being laid bare.
“Borrowers hoping February’s hike would be a one-off should adjust their expectations and start preparing for another hike.
“An extra $90 a month on a $600,000 mortgage might not sound catastrophic, but stacked on top of the February rate hike, in addition to other rising costs such as electricity, an increasing number of households will start to run out of wiggle room.
“Both fixed and variable rates might be on the rise, but that doesn’t mean yours has to. Owner-occupiers should still be aiming for a rate under 5.50 per cent.
“While the best time to renegotiate your mortgage might have been in the past, the second best time is today.”
This article was reviewed by our Consumer Editor Meagan Lawrence before it was updated, as part of our fact-checking process.
