Key Takeaways
- Headline CPI rose 3.8% YoY in January, slightly above expectations; monthly +0.4%.
- Trimmed mean steady at 3.4% YoY with monthly readings ~0.3% in five of the past six months.
- Electricity prices rose 18.5% in January as households used extended rebates — energy will contribute more clearly to CPI as rebates roll off.
- Q4 capex up +0.4% (slowing from 6.4% in Q3) but solid 7.8% YoY; non-mining capex outperforming.
- AUD near US$0.711 — three-year high. Markets pricing ~80% probability of a May hike.
Market UpdateInflation edges higher, core holds steady
Headline inflation rose 3.8% over the year to January, slightly above expectations. Monthly CPI increased 0.4%, reflecting stronger-than-expected rises in electricity and clothing & footwear.
Core inflation remains steady. The Trimmed Mean measure rose 0.3% in the month and 3.4% over the year. The annual pace was marginally higher due to revisions, with monthly core readings printing around 0.3% in five of the past six months.
Energy effects were significant. Electricity prices rose 18.5% in January as households used extended rebates, narrowing the gap between rebated and underlying prices. As rebates roll off, energy is expected to contribute more clearly to CPI.
Mixed category movements: holiday travel fell sharply, partially offsetting price gains elsewhere. Rents were slightly softer than expected, while new dwelling costs showed signs of firming. Clothing and footwear recorded a notable monthly increase.
The RBA continues to focus primarily on quarterly CPI when assessing underlying inflation. Current readings suggest inflation is moderating gradually, though core measures remain above target and sensitive to energy and services pricing trends.
Consumer ConfidenceConfidence rises 3.1pts
InvestmentInvestment momentum cools, but underlying activity remains solid
- Capital expenditure rose 0.4% in Q4 2025, slowing sharply from 6.4% in Q3 but ahead of expectations for flat growth.
- Private capex +7.8% YoY, with buildings and infrastructure leading (+2.3% Q4).
- Non-mining capex outperformed: +3.7% in buildings while mining-related investment edged down (-0.2%).
- State results mixed — VIC, QLD, SA, WA, NT recorded gains; TAS flat; ACT saw a sharp decline.
Foreign ExchangeAUD near multi-year highs as policy expectations firm
- The AUD trading near US$0.711, close to more than three-year highs — fourth consecutive monthly gain (~2% in February, >6% YTD).
- Markets pricing roughly 80% probability of a rate hike in May; around 40bps of tightening expected over the year.
- Australia outperforming within the G10 — resilient domestic conditions and firmer inflation supporting expectations of a tighter RBA stance.
- Many economists anticipate the cash rate peaking near 4.10%, broadly in line with prior tightening phases.
- Upcoming manufacturing PMI and GDP figures key for whether AUD can sustain current levels.
Sources: Westpac Weekly (22 February), ABS, Macrobond, Westpac Economics, ANZ-Roy Morgan, Trading Economics. This summary is for informational purposes only and should not be considered financial advice.