Inflation dips, but a rate rise is still on the menu
Key takeaways
- The headline inflation rate for the last 12 months is 4.2%, down from 4.6% last month.
- But underlying inflation, which the Reserve Bank looks at more closely, actually rose slightly.
- What's next: The RBA doesn't set rates again until mid-June, but today's figures suggest another rate rise is likely this year.
Inflation is still well above where the Reserve Bank of Australia (RBA) wants it to be, suggesting more interest rate rises this year.
The Australian Bureau of Statistics (ABS) released its monthly Consumer Price Index figures today, which show inflation rose by 4.2% in the last 12 months.
That's slightly better than last month's 4.6% rise. But it's still well above the Reserve Bank's target of 2–3%.
Housing costs (up 6.3%) and transport costs (falling month-on-month, but still up 6.6%) were the biggest drivers of inflation.
Where are rates heading?
Check out analysis from Finder's experts
Inflation is not under control yet
The federal government's fuel excise cut helped drive inflation down. This is the first month that the excise cut is showing up in the monthly CPI figures.
But "fuel prices are still 23.5 per cent higher compared to February and before the impact of the Middle East conflict," said ABS head of prices statistics Sue-Ellen Luke.
While this shows the excise has had the desired effect, it's clear that inflation in the broader economy is not under control.
The trimmed mean inflation, which smooths out temporary noise like volatile fuel prices and gives a clearer sense of underlying inflation, tells a different story.
It's actually higher month-on-month, moving from 3.3% in the 12 months to March to 3.4% in today's figures.
The RBA tends to focus on the trimmed mean when making rate decisions.
What do today's CPI figures mean for interest rates?
These figures are not good news for borrowers. Housing costs are still driving inflation. This is despite three rate rises so far in 2026 and real signs that property prices are actually falling.
The Reserve Bank raised the cash rate at its last meeting on 16 May. The effects of this increase have not yet fully flowed through to borrowers.
So there's a chance that next month's inflation figures will show bigger falls as the effects of the rate hike become clearer.
The RBA meets before these monthly figures come out, so they may hold off until more data comes through.
But the odds of another rate increase this year are high. And this will mean interest rates at peaks we haven't seen since 2011.
Sources
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