The RBA is under fresh pressure as new inflation figures dampen expectations

Australia’s fight against inflation has hit another frustrating roadblock with new figures showing rates are still rising – and fast enough to keep pressure on interest rates.

The latest data released by the ABS today shows that the Consumer Price Index (CPI) rose by 3.7 per cent in the 12 months to February, down slightly from 3.8 per cent in January.

But the adjusted headline – a key measure of inflation closely watched by the Reserve Bank of Australia (RBA) – held firm at 3.3 percent, raising broad price pressures across the economy and strengthening the case for a third interest rate hike.

Housing costs and rents contributed to inflation in February. Photo: Chris Radburn.

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Housing remained the biggest driver of annual inflation, rising 7.2 percent over the year – up from 6.8 percent in January, as electricity, construction, and rental costs continued to rise.

The ABS said the strong annual increase in February reflected the end of federal rebates, although excluding the impact of Commonwealth and provincial electricity assistance measures, electricity prices rose by around 4.9 per cent over the year, mainly due to the annual retailer price review in July 2025.

Food and non-alcoholic beverages also remained strong, up 3.1 percent over the year, while entertainment and culture rose 4.1 percent.

Canstar.com.au director of data Sally Tindall said the figures showed a third rate hike was still on the cards.

Canstar Data Insights director Sally Tindall. Image: provided.

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“Today’s CPI figures offer little relief in the fight against inflation,” Ms Tindall said. “There is no calm before the storm, but instead, persistent inflation that will increase if the Middle East conflict hits next month’s data, just six days from the next RBA meeting.

“If the RBA raises interest rates for the third time in as many meetings, borrowers will return to the maximum interest rate from November 2011.

“This will result in a 7.4 percent increase in the monthly payment of the borrower, in addition to which the cost of fuel, groceries and utilities will likely increase.”

Economists at Westpac expected inflation to slow, but warned that looming energy shocks are likely to push inflation higher in the coming months, complicating the RBA’s outlook.

They said the February data did not reflect the impact of recent increases in the Middle East, with rising oil prices and disruptions to shipping through the Strait of Hormuz occurring too late for the latest CPI print to be available.

A petrol station sign advertises diesel for more than $3 a litre, a new high due to the Middle East war, in the Melbourne suburb of Newport. Photo: William West.

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Roy Morgan CEO Michele Levine said weekly inflation had risen in recent weeks after the US-Israel war with Iran.

“Since mid-February the price of gasoline has increased to $2.38 a liter – an increase of more than 70 cents a liter in a few weeks,” said Ms. Levine.

“Looking ahead, the rapid rise in energy prices in recent weeks has led to a sharp increase in inflation that is expected to hit record highs and threatens a sharp recession in the next few months if these high prices persist.”

Master Builders NSW chief executive Matthew Pollock said the continued reliance on rising interest rates to curb inflation was placing a huge burden on housing supply – particularly middle and high-end residential projects.

“The Reserve Bank has made it clear that inflation remains very high, and it has also made it clear that high public spending is adding pressure to the economy,” said Mr Pollock. “The interest rate policy is now being forced to raise the bar.”

Mr Pollock said the construction sector was being “increasingly used as a pressure valve” for inflation.

“High inflation, combined with repeated rate hikes, is eroding the ability to work around the world,” he said.

“In apartment and mixed-use developments where financing costs, holding costs and risk profiles are already high these settings are pushing more projects into unusable space.”

Households who have been banking on rate cuts later this year may now be resetting their expectations, with many experts warning they could continue into 2027 if inflation refuses to ease.

The RBA has made it clear that it needs to see inflation tracking firmly back to its 2-3 per cent target before considering a rate cut and today’s result suggests that milestone is still a long way off.

The board meets again in May.