The Australian Bureau of Statistics (ABS) is set to release the Consumer Price Index (CPI) for February, with expectations that inflation will hold steady at 3.8% year-on-year and remain flat on a monthly basis [1]. This would mark the third consecutive month with annual inflation above the Reserve Bank of Australia’s (RBA) 2%-3% target range, reinforcing concerns about persistent price pressures [1]. The RBA has already raised its key interest rate to 4.10%, and policymakers are closely monitoring potential second-round effects on inflation [1].
Markets anticipate that the RBA will maintain a hawkish stance, with rising expectations of further rate hikes in the coming months [1]. The RBA’s preferred inflation gauge, the Trimmed Mean CPI, is also forecast to remain unchanged at 3.4% year-on-year [1]. However, Westpac notes that fuel prices declined during the period, partially masking underlying inflationary pressures, while housing-related costs such as rents and electricity, as well as education and clothing prices, continue to rise [1]. Lower fuel and travel costs have helped contain headline inflation for now [1].
Geopolitical tensions in the Middle East and disruptions to energy supply routes are pushing oil prices higher, which could feed into Australian inflation in the months ahead [1]. The February data does not fully reflect the recent surge in energy prices, and Westpac expects inflation to rise to around 4.6% year-on-year in the June quarter due to the energy shock [1]. While the direct impact on core inflation is expected to be limited, second-round effects via wages and inflation expectations remain a key concern for policymakers [1].
Ahead of the CPI release, the AUD/USD is trading near recent lows around 0.6960, as the US Dollar stabilizes following its recent decline [1].
CONCLUSION
Australian inflation is expected to remain above target in February, reinforcing the RBA’s hawkish outlook and fueling market expectations of further rate hikes. Risks are tilted to the upside, with geopolitical factors and rising energy prices likely to push inflation higher in the coming months. The market remains cautious, with AUD/USD trading near recent lows ahead of the CPI release.