Q1 CPI slightly softer than expected but more inflation to come in Q2 and Q3

Gareth Spence & Michael Hayes | Markets Research

Key points

• Q1 trimmed mean was 0.8% qoq and 3.5% yoy (NAB and Consensus 0.9%)
• 0.1ppts below RBA’s Feb SoMP forecast
• NAB continues to expect the RBA will increase rates by 25bps in May and then remain on hold until mid-to-late 2027.
• December Monthly CPI was 4.6% yoy (NAB 4.7%, consensus 4.8%)

RBA Implication

In terms of policy relevance, the quarterly trimmed mean remains the key measure of underlying inflation. At 0.8% qoq this was slightly softer than NAB and consensus expected, but in line with the RBA’s Feb SoMP forecast. However, that forecast pre-dated the escalation in the Middle East and did not encompass the large increase in fuel prices seen in the quarter. At face value, the outcome implies a slightly softer trajectory for inflation than the RBA had expected though, in part, the 1 tenth miss in our forecast was driven by the volatile travel components.

Overall, these data are dated given the unfolding oil price shock and the RBA will remain alert to second round impacts as high prices for energy, transport and oil-based products flow through supply chains – which would likely be more evident in Q2 and Q3. The starting point for the RBA is not a favourable one with core inflation tracking at ~3.5% prior to the shock and we remain concerned about broad and rapid 2nd round second-round pass through. For now, we continue to see one more hike by the RBA (next week) before they remain on hold but remain alert to the risk the RBA may need to take the cash rate slightly higher than we currently forecast.

Q1 Quarterly Trimmed Mean

Q1 trimmed mean was 0.80% qoq and 3.5% yoy. This was slightly softer than we had expected, though a large part of our 1 tenth miss was driven by the volatile travel components. Inflation remains broad-based with ~2/3rds of the basket rising by more than 3% on an annualised basis.

Note: The quarterly number is calculated based on the historical collection frequencies that were used in the old quarterly CPI and so doesn’t use all the information now available in the monthly release. This avoids the challenges with seasonal adjustment that plague the monthly and it maintains the well-established properties of the old quarterly series.

March Monthly CPI

CPI was 4.6% yoy in March (NAB 4.7% yoy, Consensus 4.8% yoy), up from 3.7% yoy in February, driven by a sharp increase in fuel prices.

The monthly trimmed mean was 3.3% yoy (NAB and Consensus 3.3% yoy). In monthly terms the monthly trimmed mean edged up to 0.3% from 0.2% last month. It is still annualising above 3% on a 1-, 3- and 6-month basis. Of note, the components which we consider the most persistent across the CPI basket continue to annualise above 4%. 

Elsewhere in the detail

• Electricity prices were flat in the month and have remained broadly unchanged since the large monthly rise in January when the EBRF extension payments expired. Despite no monthly change, electricity prices are sitting 25.4% higher than they were 12 months ago.
• Shelter inflation slowed marginally in March, driven by a further slowing of rents, up only 0.2% mom, despite new dwelling purchase costs accelerating to 0.48% mom (0.15% mom in February). The fall in rent price growth more than retraced the uptick seen over the three months prior. New dwelling costs remain a risk with oil-based plastics, energy and transport costs all likely to impact the cost of building materials over coming months.
• Markets Services inflation excluding rents was 0.27% mom, similar to its pace last month and holding above 3% on a year-ended basis. Household and recreation services have remained persistently elevated.
• Market Goods inflation was supported by a 32.8% mom rise in automotive fuel costs as the impact of the Middle East conflict showed up in fuel prices, however this print predates the fuel excise tax cut.

Quarterly, based on historical collection frequencies from old quarterly CPI

Chart 1: Quarterly Trimmed Mean

Chart 2: Quarterly CPI contributions. Calculated according to the collection frequency in the old quarterly CPI methodology to avoid seasonal adjustment challenges in the new monthly data

Chart 3: Share of the basket running above threshold on a quarterly annualised basis. Calculated according to the collection frequency in the old quarterly CPI methodology to avoid seasonal adjustment challenges in the new monthly data

Monthly CPI

Chart 4: Trimmed Mean Inflation, thin line is quarterly, thick line is monthly

Chart 5: Headline inflation. Thin line is quarterly, thick line is monthly

Chart 6: Core measures

Chart 7: Contributions to Headline CPI inflation

Table 1: CPI heat map with analytical measures. Shows 1- 3-, 6- and 12m annualised outcomes. Shading reflects how far inflation is above or below a benchmark of the 6 years to end 2014 when inflation averaged around the mid-point of the target

Table 2: CPI heat map by subcategory. Shows 1- 3-, 6- and 12m annualised outcomes. Shading reflects how far inflation is above or below a benchmark of the 6 years to end 2014 when inflation averaged around the mid-point of the target

Chart 8: Administered services inflation

Chart 9: Market Services Inflation

Chart 10: Tradable and Non-tradables inflation

Chart 11: Share CPI basket more than 1ppt from target midpoint

This document has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). Any advice contained in this document has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances. NAB recommends that you obtain and consider the relevant Product Disclosure Statement or other disclosure document, before making any decision about a product including whether to acquire or to continue to hold it. Please Click Here to view our disclaimer and terms of use. Please Click Here to view our NAB Financial Services Guide.

All prices and analysis at 29 April 2026.  This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). The content is distributed by WealthHub Securities Limited (WSL) (ABN 83 089 718 249)(AFSL No. 230704). WSL is a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited (ABN 12 004 044 937)(AFSL No. 230686) (NAB). NAB doesn’t guarantee its subsidiaries’ obligations or performance, or the products or services its subsidiaries offer.  This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice.  Past performance is not a reliable indicator of future performance.  Any comments, suggestions or views presented do not reflect the views of WSL and/or NAB.  Subject to any terms implied by law and which cannot be excluded, neither WSL nor NAB shall be liable for any errors, omissions, defects or misrepresentations in the information or general advice including any third party sourced data (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the general advice or information. If any law prohibits the exclusion of such liability, WSL and NAB limit its liability to the re-supply of the information, provided that such limitation is permitted by law and is fair and reasonable. For more information, please click here.