Key Takeaways
- February CPI 3.7% YoY (flat over the month); trimmed mean steady at 3.3% — pre-oil-shock data was reassuring.
- Forecasts now point to headline inflation rising to ~5.5% by mid-2026, with underlying peaking near 3.5%.
- RBA lifted the cash rate to 4.10%; ANZ flag a final 25bp hike in May to 4.35%.
- Consumer confidence fell 5.4pts to its lowest since 1973. Inflation expectations hit an all-time high.
- Oil eased to ~US$93/bbl but still up ~40% since the conflict began. AUD below US$0.695, a seven-week low.
Market UpdateThe pre-oil-shock picture was actually improving
February inflation came in slightly softer than expected, with CPI at 3.7% year-on-year and flat over the month, suggesting price pressures were easing at the start of 2026. Underlying inflation also moderated, with the trimmed mean steady at 3.3% and monthly growth at 0.2%, breaking a run of firmer outcomes and indicating a gradual loss of momentum in core inflation.
Housing costs were a key contributor to the softer result, with dwelling price growth slowing to just 0.1% in the month. Other components were mixed — education costs rose less than expected, while travel declined and some household goods categories saw price falls.
Importantly, this data predates the sharp lift in global oil prices. As a result, headline inflation is now expected to rise again, with forecasts pointing to around 5.5% by mid-2026, largely driven by higher fuel costs. Underlying inflation is expected to peak more modestly, closer to 3.5%.
Inflation was moving in the right direction before the recent energy shock. The divergence between headline and underlying is now likely to widen, complicating the outlook for monetary policy.
Consumer ConfidenceConfidence falls 5.4pts to record low
Oil MarketsOil pulls back, but risks remain elevated
- Oil prices eased back toward $93/bbl, trimming recent gains as short-term tensions showed signs of stabilising.
- Some tanker traffic has resumed through the Strait of Hormuz, supported by diplomatic signals and new insurance measures.
- Negotiations remain fragile, with Iran rejecting US proposals and continuing to assert control over the region.
- The Strait remains a critical chokepoint, with roughly 20% of global oil supply flowing through it.
- Despite the recent pullback, oil prices are still up around 40% since the conflict began.
Foreign ExchangeAUD under pressure as global risks build
- The Aussie dollar weakened to below US$0.695, hovering around a seven-week low.
- Escalating Middle East tensions, conflicting negotiation signals and increased military activity have raised the risk of a prolonged conflict.
- Safe-haven flows into USD have pressured risk-sensitive currencies like the AUD.
- The RBA has flagged that higher oil prices could lift both headline inflation and inflation expectations.
- Supply-driven shocks complicate policy: they push inflation higher while weighing on growth, limiting monetary policy effectiveness.
- The policy focus has shifted toward preventing inflation expectations from becoming entrenched, even if the initial shock is temporary.
- Higher Australian rate expectations would normally support the AUD, but are currently offset by global growth and geopolitical concerns.
Sources: Westpac Weekly (23 March), ABS, Macrobond, Westpac Economics, ANZ-Roy Morgan, Trading Economics. This summary is for informational purposes only and should not be considered financial advice.