Will Australia’s January CPI lead markets to price in an RBA rate cut in March?

Australia will release its key set of inflation figures for the month of January on Wednesday, with the Consumer Price Index (CPI) expected to rise by 3.7%, slightly lower than the 3.8% in the last month of 2025.

What really matters in Australia’s inflation data?

If you’ve ever felt slightly lost when looking at Australia’s inflation numbers, you’re not alone. In contrast to the US, where a single CPI print often dominates the narrative, Australia presents a variety of factors, each with varying weights.

The headline figures come from the Australian Bureau of Statistics (ABS). The quarterly CPI is the full basket, the comprehensive snapshot, and ultimately the anchor for policy decisions at the Reserve Bank of Australia (RBA). When that number lands meaningfully above or below expectations, markets listen.

But in between those quarterly releases, we now get the monthly CPI indicator: It is more of a pulse check than a full medical exam. It does not cover the entire basket, yet it gives traders an early sense of whether inflation momentum is building or fading. In practice, it has become a positioning tool ahead of the bigger quarterly print.

Still, if you really want to understand how the RBA is thinking, you need to look beneath the headline.

The Trimmed Mean is the measure policymakers care about most. It strips out the most extreme price moves, both up and down, to get closer to the underlying trend. Petrol can fall, and electricity rebates can distort the top line, but if the trimmed mean is not easing, the RBA is unlikely to relax. That is the number that shapes the medium-term policy path.

There is also the Weighted Median, another core gauge that smooths volatility in a slightly different way. It usually remains unnoticed, but when it moves in the same direction as the trimmed mean, it reinforces the message.

For markets, and especially for Australian Dollar (AUD) traders, the distinction is crucial. Headline CPI can spark an immediate move. But it is the trajectory of underlying inflation that determines whether rate expectations shift in a lasting way.

So on Wednesday, the real question will not simply be whether inflation ticks up or down. It will depend on whether the core story is finally turning or whether price pressures remain sticky enough to keep the RBA cautious for longer.

The RBA remains cautious

In its quarterly Statement on Monetary Policy (SMP), released alongside the February rate decision, the RBA made a subtle but important shift. Instead of markets pricing in another cut, the bank is now working off a technical assumption of around 60 basis points of hikes this year, a clear reversal from November.

It also questioned whether policy is still restrictive after last year’s three cuts, noting that some indicators now point to slightly accommodative conditions, a marked change in tone.

In addition, growth forecasts were lifted to 2.1% by June, helped by stronger consumption and investment. However, inflation is becoming increasingly difficult to control. Indeed, the Trimmed Mean is seen increasing to 3.7% by mid-year, with core inflation receding a tad to 2.6% by mid-2028, still above the target midpoint. Headline inflation is projected to peak at 4.2%, partly due to the expiry of electricity rebates.

Overall, the message is clear: firmer growth, more persistent inflation, and less certainty that rates are heading lower.

So far, market participants expect nearly 39 basis points of tightening by the RBA this year, although the central bank is seen keeping its Official Cash Rate (OCR) unchanged at 3.85% in March.

What to expect from Australia’s inflation rate numbers?

Pretty solid fundamentals in Oz and a healthy labour market plot against any aspiration of inflation losing significant momentum, at least in the short-term horizon. Against that backdrop, inflation in Australia should remain sticky and above the bank’s target range for now, further propping up the rally in the AUD.

January CPI is forecast at 3.7%, while the Trimmed Mean CPI is expected to rise 3.3% YoY, unchanged from the previous month.

Pablo Piovano, Senior Analyst at FXStreet, notes, “If the bullish bias comes back, AUD/USD could rise to the 2026 ceiling at 0.7147 (February 12), closely followed by the 2023 high at 0.7157 (February 2).”

On the flip side, Piovano adds that “a breach below the February low of 0.6897 (February 6) would expose a drop to the interim 55-day and 100-day SMAs at 0.6821 and 0.6687, respectively, ahead of the 2026 bottom of 0.6663 (January 9) and the key 200-day SMA at 0.6605.”

Momentum indicators remain positive: “The Relative Strength Index (RSI) navigates above the 62 level, and the Average Directional Index (ADX) near 43 is indicative of a strong trend,” he concludes.