Inflation is sticking around, keeping pressure on the Reserve Bank of Australia (RBA) to raise rates again.
"This is not a one-hike-and-done story," Sally Auld, National Australia Bank's (NAB) group chief economist, said during a webinar attended by Australian Broker.
She added that inflation is "not a problem that can be dealt with in just one rate hike."
Markets were largely unsurprised — if a little frustrated — when the RBA lifted the official cash rate (OCR) by 25 basis points to 3.85% last month. The move tightens borrowing power for households and pushes mortgage costs higher, marking a sharp reversal from the three rate cuts seen in 2025.
But the market had already factored in the change after inflation jumped unexpectedly in the back half of 2025. The central bank was clear it wouldn’t ease policy further until prices returned to the 2% to 3% target inflationary range. As price pressure kept mounting, market participants began speculating that a rate hike was imminent
"I think the message here is that we're in a world, and I think in an economy, and not just in Australia, but globally as well, where we need to understand that things can actually shift quite quickly," Auld said. "In the space of six months,we went from thinking inflation wasn't so bad, to thinking we've got quite a significant inflation problem to deal with.
"So that means, if we're running a business, or advising others on how to run a business, or even managing an investment portfolio … things can change rapidly and we need to be nimble," she continued.
The economist added that NAB is anticipating "inflation to get a little bit higher, and then eventually come back into that 2% to 3% target band,and hopefully settle around two-and-a-half [percent]."
But the most recent consumer price index (CPI) data hasn't shown any signs of inflation slowing down. January's headline CPI print was 3.8%, the same as December. But the trimmed mean inflation — which many economists consider a better indicator of underlying inflation — edged up to 3.4%, from 3.3% the month earlier. That's on top of increases in both headline CPI and trimmed mean inflation in December's print.
NAB is forecasting the RBA will hold at its upcoming March meeting, but then raise rates another 25 basis points at the May meeting.
"We feel pretty confident that that's broadly locked in, unless things change again," Auld said. "Unfortunately, I think the size of the problem [the RBA] is facing into is one that requires, at a minimum, two rate hikes. And possibly, even though it's not our central case scenario as of now, a third one."
Over at Westpac, Senior Economist Justin Smirk said: "There was nothing in these [most recent inflation] numbers to make us think, or see even a softer number [coming] in the March quarter either.
"At the moment, the CPI numbers are telling us that the RBA won't be seeing enough to make them [cut] earlier in March," he continued. "And they can still wait for the quarterly numbers, and the quarterly numbers will come in relatively robust, and setting us all up for a rate rise in May."
The RBA's next meeting on monetary policy is scheduled for the 16 and 17 of March.
