Inflation in Australia eased for the first time in three months over February, but developments in the Middle East since are yet to be reflected in the data.
Latest data from the Australian Bureau of Statistics this week shows the Consumer Price Index (CPI) eased to 3.7% for the 12 months to February, down from 3.8% in the first month of the year.
The trimmed mean, which is used by the Reserve Bank as a measure to inform the cash rate, remained steady at 3.3%.
| Month | Headline CPI | Trimmed mean |
| Feb 2026 | 3.7% | 3.3% |
| Jan 2026 | 3.8% | 3.3% |
| Dec 2025 | 3.8% | 3.3% |
| Nov 2025 | 3.4% | 3.2% |
| Oct 2025 | 3.8% | 3.3% |
Figures that would otherwise read fairly positively for markets do not yet capture the flow on effects of the RBA’s February rate hike; most crucially, they also do not capture the high inflationary environment Australians now find themselves in.
The last day of February marked the start of the US-Israel coordinated attacks across Iran, meaning none of the inflationary volatility of the last four weeks is captured in it.
A month of war in the Middle East has placed significant global pressure on oil prices, causing what the International Energy Agency has now labelled the largest supply disruption in the history of the global market.
Aussies remain in the midst of a fuel availability crisis that has significantly driven up costs across the nation.
Petrol prices are sitting at around 220 cents/L for unleaded. Picture: Getty
Grocery prices, travel, transport and health costs also captured within the CPI measure are also expected to be affected as the Iran War continues, experts forecasting inflation could soar over 5% within months.
Westpac senior economist Justin Smirk said the bank was expecting CPI to jump in March and headline inflation to peak at 5.5% in the middle of the year “driven largely by fuel”.
“By contrast, the trimmed mean, which will exclude fuel volatility, is projected to rise 0.4% month-on-month in March, with the annual pace peaking closer to 3.5% in mid‑2026,” he added.
With the federal budget six weeks away, Deloitte Access Economics head Pradeep Philip said the pre-conflict figures are placing pressure on the government’s management of the economy.
Treasurer Jim Chalmers is under pressure ahead of the 2026 Federal Budget. Picture: Getty
“It highlights the urgent need to lift the productive capacity and run rate of the economy, which remain key challenges facing the budget,” he said.
“Time will tell whether last week’s rate hike was a prudent safeguard against domestic pressures and external shocks, or a premature move that risks weakening an already fragile economy being rocked by forces beyond its control.”
The government’s control of the economy, which is growing at its fastest rate in almost three years, has also been criticised by the Reserve Bank in recent weeks.
Speaking before the bank’s most recent rate hike this month, governor Michele Bullock said aggregate spending, which includes the government’s spending, was weighing too heavily on the economy and driving up inflation.
The RBA chose to pull its own lever of impact last week, hiking the cash rate to an eight-month high in a bid to take control of inflation as quickly as possible.
The next rate decision is set for the week before the federal budget and its unlikely now that Aussies can escape a third consecutive hike.
As of 25 March, markets are pricing in a 57% chance for the cash rate to rise to 4.35% when the RBA next meet on 5 May.
This article first appeared on Mortgage Choice and has been republished with permission.
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