Australia stands at an economic crossroads, where a single morning's data release will shape the financial reality of millions of households. The Reserve Bank of Australia, navigating the aftershocks of a geopolitical energy crisis not seen since the oil shocks of a generation ago, must decide whether to tighten borrowing conditions for a third consecutive time — a choice that Wednesday's inflation figures will largely make for it. In the long arc of monetary history, this moment reflects a familiar tension: the central bank as reluctant arbiter between the stability of prices and the strain o
Inflation data set to determine RBA rate hike as markets price in 80% probability
Three interest rate hikes already this year have added approximately $1,800 to average mortgage payments for Australian households.
Only a substantial downward surprise would shift the rate hike calculus now
Mark
So the RBA is almost certainly going to raise rates again next week?
Mimi
Markets are pricing it at 80 percent, yes. But it hinges on what the inflation data shows on Wednesday. That's the real decision point.
Luke
Wait—if markets are already at 80 percent, doesn't that mean the decision is basically made? What would actually change their mind?
Mimi
A really big downward surprise in the inflation numbers. Commonwealth Bank says it would have to be substantial to shift the needle at this stage.
Mark
And what are they expecting?
Mimi
Trimmed mean CPI up 0.9 percent for the quarter. That's in line with what most economists are forecasting. Headline inflation could jump 1.5 percent because of the energy shock from the Iran situation.
Luke
The Iran situation—is that actually confirmed as the cause, or is that attribution?
Mimi
The Strait of Hormuz closure is real. Westpac is calling it the largest energy shock since the 1970s oil crises. But you're right to push back—we're seeing inflation rise, and the conflict is happening, but the direct causal chain is what economists are inferring.
Mark
How much pain is this already causing people?
Mimi
Three rate hikes this year have added about $1,800 to the average mortgage. And if markets are right, there's another 58 basis points coming by year-end.
Luke
That's a market prediction, though. Not a forecast from the RBA itself.
Mimi
Correct. It's what traders are pricing in based on their inflation expectations.
Mark
When will we actually know if the RBA is done hiking?
Mimi
Westpac thinks trimmed mean inflation won't drop below 3 percent until the end of 2027. So probably not soon.
Le Pouls
- Markets are already pricing an 80% chance of another rate hike on May 5, leaving Wednesday's inflation data as the last real variable in an equation that feels nearly solved.
- The closure of the Strait of Hormuz has delivered the most severe energy shock in four decades, driving up costs across food, housing, and services in ways that are proving stubbornly difficult to contain.
- Three rate hikes have already landed this year, quietly adding around $1,800 to the average Australian mortgage — a burden that grows heavier with each passing decision.
- Westpac warns that trimmed mean inflation could peak near 4% by mid-year and may not retreat below 3% until late 2027, suggesting the tightening cycle has a long road still ahead.
- Commonwealth Bank's Carol Kong notes that only a significant downside surprise in Wednesday's figures could realistically derail another increase — the momentum toward further tightening is formidable.
Australia stands at an economic crossroads, where a single morning's data release will shape the financial reality of millions of households. The Reserve Bank of Australia, navigating the aftershocks of a geopolitical energy crisis not seen since the oil shocks of a generation ago, must decide whether to tighten borrowing conditions for a third consecutive time — a choice that Wednesday's inflation figures will largely make for it. In the long arc of monetary history, this moment reflects a familiar tension: the central bank as reluctant arbiter between the stability of prices and the strain on ordinary lives.
The Reserve Bank of Australia's May 5 interest rate decision is now almost entirely contingent on a single data release: Wednesday's quarterly inflation figures, due just before noon. Commonwealth Bank currency analyst Carol Kong has described the consumer price index data as 'make or break' for another hike, with financial markets already assigning roughly 80 percent probability to a 25 basis point increase.
CBA's economics team expects the trimmed mean CPI — the measure that smooths out volatile price movements — to rise 0.9 percent for the quarter, in line with broader forecasts. Kong acknowledged that softer-than-expected figures remain possible, but suggested only a substantial downward surprise could meaningfully shift the trajectory at this stage. Should the RBA raise rates next week, it would be the third consecutive increase, lifting the official cash rate to 4.35 percent and adding further pressure to households already absorbing around $1,800 in additional annual mortgage costs from hikes earlier this year.
The inflation environment has been fundamentally altered by the closure of the Strait of Hormuz, which Westpac economist Justin Smirk characterises as the largest energy shock since the oil crises of the 1970s and 1980s. The disruption is rippling through food prices, household services, and new housing costs. Westpac forecasts headline inflation could jump as much as 1.5 percent in Wednesday's release, while its trimmed mean projections suggest inflation will peak near 4 percent around mid-year and remain above 3 percent until the end of 2027.
For Australian households, the stakes are immediate and personal. Markets are pricing in a further 58 basis points of tightening before year's end, meaning the pressure on borrowers is unlikely to ease soon. Wednesday's figures will determine whether that pressure intensifies next week — or whether the RBA finds, however briefly, a reason to pause.
The Reserve Bank of Australia faces a critical test on Wednesday. When the quarterly inflation figures arrive just before noon, they will largely determine whether the central bank raises interest rates again on May 5—a decision that financial markets are already pricing at roughly 80 percent probability.
Commonwealth Bank's currency analyst Carol Kong laid out the stakes plainly: the consumer price index data is "make or break" for another rate hike. The bank's economics team expects the trimmed mean CPI—a measure that strips out volatile price swings—to climb 0.9 percent for the quarter, matching what most economists are forecasting. But Kong acknowledged a real possibility that underlying inflation could come in softer than expected. Even so, she suggested that only a substantial downward surprise would be enough to materially shift market expectations at this point. The momentum toward another increase appears difficult to reverse.
If the RBA does raise rates by 25 basis points next week, it will mark the third consecutive hike. Three increases have already landed this year, adding roughly $1,800 to the average Australian mortgage payment. The official cash rate currently sits at 4.1 percent. Markets are already pricing in an additional 58 basis points of increases by year's end, suggesting the tightening cycle is far from finished.
The inflation picture has been reshaped by geopolitical shock. The closure of the Strait of Hormuz has created what Westpac economist Justin Smirk describes as the largest energy shock since the oil crises of the 1970s and 1980s. This disruption is flowing through to consumer prices across multiple categories. Westpac forecasts headline inflation will jump as much as 1.5 percent in Wednesday's data, while Commonwealth Bank expects the trimmed mean rate to rise 0.9 percent. The most recent figures, from February, showed headline inflation at 3.7 percent annually and trimmed mean at 3.3 percent—both measured before the Iran conflict intensified.
Smirk points to food prices, household services, and new house prices as the major drivers pushing Australia's inflation higher. Westpac's forecasts suggest the trimmed mean inflation will peak around 4 percent in the middle of the year and will not fall back below 3 percent until the end of 2027. That extended timeline underscores how deeply the energy shock is expected to embed itself in the economy.
Wednesday's data release will be the moment when forecasts meet reality. If inflation comes in as expected or hotter, the case for another rate hike hardens. If it surprises to the downside, the RBA will have to weigh whether the energy shock's impact is already fading or whether the worst is still ahead. Either way, Australian households already feeling the weight of higher borrowing costs will be watching closely to see whether their mortgages are about to become more expensive again.
Citations marquantes
Today's Australian Q1 '26 CPI will make or break the case for the Reserve Bank of Australia to increase its cash rate on May 5— Carol Kong, Commonwealth Bank currency analyst
The Iran conflict is the largest energy shock since the oil crises of the 1970s and '80s— Justin Smirk, Westpac economist
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