Inflation figures ‘make or break’ for interest rate hike, CommBank analyst says

Key inflation data on Wednesday is “make or break” for the central bank to hike interest rates again next week, Commonwealth Bank says.

CBA currency analyst Carol Kong says the quarterly consumer price index data, due shortly before noon on Wednesday, is the central piece of information for the RBA to consider ahead of its next interest rate decision on May 5.

“Today’s Australian Q1 ’26 CPI will make or break the case for the Reserve Bank of Australia to increase its cash rate on May 5,” Ms Kong said in a note.

“Our Australian economics team expect trimmed mean CPI to increase by a firm 0.9 per cent/qtr, in line with the consensus of economists.

“There is a risk of a weaker outcome for underlying inflation than consensus. It would take a large downward surprise to materially pull down market pricing for a hike next week in our view.”

The market is putting an almost 80 per cent chance the central bank raises the cash rate 25 basis points next week, which would be the third consecutive hike.

The quarterly inflation data will show the price rises washing through the economy on the back of the closure of the Strait of Hormuz.

Headline inflation is running at 3.7 per cent on annual terms, with trimmed mean inflation at 3.3 per cent. The latter excludes volatile price changes, but these figures are from February, before the war in Iran.

AMP chief economist Shane Oliver predicts headline inflation to jump as much as 1.5 per cent in Wednesday’s data, with CBA forecasting a 0.9 per cent rise in the trimmed rate.

Following three interest rate hikes already this year adding about $1800 onto the average mortgage, the official cash rate sits at 4.1 per cent.

On top of the highly likely 25 basis point hike next week, markets predict 58 basis points of hikes by the end of the year.

The Iran conflict is the largest energy shock since the oil crises of the 1970s and ’80s, Westpac economist Justin Smirk says, with the big bank tipping a 1.5 per cent rise in the headline inflation figure.

Westpac also forecasts the trimmed mean inflation to peaking about 4 per cent in mid-year and not return below 3 per cent until the end of 2027.

Rises in food prices, household services, and new house prices were the major drivers of Australia’s inflation rate, Mr Smirk said.

More to come