Daijiworld Media Network - Sydney

Sydney, Feb 25: Australia’s Consumer Price Index (CPI) remained steady at 3.8% year-on-year in January, matching the previous month’s reading, according to the latest data released by the Australian Bureau of Statistics. The number came in slightly above market expectations of 3.7%, signalling persistent inflationary pressures in the economy.

Experts say that while headline CPI grabs headlines, it is the underlying inflation measures that drive the Reserve Bank of Australia’s policy decisions.

Australia’s inflation reporting includes multiple measures to track the real trajectory of price growth:

• Trimmed Mean CPI – The most closely watched by the RBA, this measure removes extreme price swings to show the underlying trend.

• Weighted Median CPI – Another core gauge that smooths volatility and supports the trimmed mean’s signals.

“Markets react to headline CPI, but policymakers focus on the underlying story,” analysts say. Persistent core inflation indicates that the RBA will likely maintain caution on any policy easing in the near term.

In its February Monetary Policy Statement, the RBA indicated that policy settings might no longer be restrictive following three rate cuts last year. Growth forecasts were raised to 2.1% by June, supported by strong consumption and investment.

However, inflation remains a concern: the Trimmed Mean is projected to rise to 3.7% by mid-year, while core inflation is expected to gradually ease to 2.6% by mid-2028 — still above the RBA’s target midpoint. Headline inflation could peak at 4.2% due to the expiry of electricity rebates.

Markets currently price in nearly 39 basis points of tightening for the year, while the Official Cash Rate is widely expected to remain steady at 3.85% in March.

January CPI is forecast at 3.7%, with Trimmed Mean CPI at 3.3%, unchanged from December. According to FXStreet Senior Analyst Pablo Piovano, AUD/USD could rally toward 0.7147 and 0.7157 if the bullish trend continues. On the downside, a fall below 0.6897 could push the pair toward key support levels at 0.6821 and 0.6663.

With a resilient labour market and firm economic growth, analysts say inflation in Australia is likely to remain sticky, keeping the RBA cautious and supporting the Australian Dollar in the near term.