Inflation stuck at 3.8 per cent
The ABS released the monthly inflation gauge for January 2026, and it remained at a sticky 3.8 per cent reading over the year to January for headline inflation.
Trimmed mean inflation came in at 3.4 per cent, which was a bit above the median market expectation of 3.3 per cent.
Source: ABS
Housing remains a key issue, with housing inflation swelling up to 6.8 per cent over the year (from 5½ per cent in December), partly driven by rents and new dwelling costs.
Not surprisingly, a big ticket item was electricity costs, which spiked 32.2 per cent higher over the year (up from 21½ per cent in December) as government rebates unwind.
This factor wasn't altogether unexpected, but still bond yields moved a little higher on the sticky inflation release, moving back up to 4.28 per cent for the 3-year Aussie government bond.
It has been the case historically that inflation can sometimes be 'hotter' in the first month of the quarter - and less so at the end of the quarter - so perhaps partly for that reason markets are pricing interest
rates to be most likely on hold in March.
However, there is now a very good chance that there is another interest rate hike at the May meeting once the next more comprehensive quarterly data are released.
This would take the cash rate target back up to 4.10 per cent, while most other developed countries are eyeing up lower interest rates in 2026.
Rental shocks
In other news, construction work done was well below expectations in the December 2025 quarter, declining slightly from the September quarter.
Even the discussion of another potential interest rate hike will dampen conditions for developers and the sentiment for housing market investment.
There's also been a lot of media over the past fortnight which appears to be softening up the electorate for a prospective hike in capital gains taxes, which also won't encourage rental supply.
The ALP government as a general rule appears to favour institutional ownership of rental housing and superannuation fund investment in housing, via the Build to Rent (BTR) model, while not discouraging individual landlords.
The problem is that most of the potential sites for BTR are not viable to generate the required returns given high construction costs and the increasing cost of capital.
Rising interest rates
How has Australia seen demand rebound so strongly when most peer countries seem to be shaping up to cut interest rates in 2026?
A big part of it must be state and Federal government spending which has remained high as a post-pandemic legacy, the spiralling NDIS disability scheme, and investment in infrastructure projects.
South-east Queensland doesn't appear to have enough construction workers to deliver new housing, road and rail infrastructure, and a wide range of large projects in the lead-up to the 2032 Olympics, including new stadia at Victoria Park and Maroochydore, a new aquatic centre, and the tennis centre expansion.
Elsewhere, Victoria's $100-billion-plus Big Build continues apace, forthwith in the form of the Melbourne Airport Rail Link, and this is giving rise to some bountiful pay increases.
Meanwhile the $93 billion proposed Sydney to Newcastle high-speed rail project is all over the newswires this week.
All of this is clearly going to create a lot demand and will require thousands of skilled construction workers, but it's equally not clear where they're all going to live.
---
1. Download our property buying guide
Download our free property buying guide here.
You can also check out a few of our recent property purchases here.
Get in contact with us today if strategic property investment is your thing.
2. Subscribe to our Top 10 Podcasts for Investors
Listen in to our podcasts
The Australian Property Podcast is rapidly becoming one of Australia's biggest business podcasts, now with over 50,000 audio downloads per month, and growing fast.
And our popular Low Rates High Returns Show also remains available on Spotify.
3. Subscribe for my free daily blog
Subscribe for my free daily blog with over 4½ million hits here.
You can also catch up with me daily on Twitter here, where I'm far too active daily and have over 16,500 followers.
By the way, I'm an 8-times published author on finance, investing, and business, so you can check out some of my books here.
My new book, co-authored with Cate Bakos is available to buy here or on Amazon here - check out our free Buy Right podcast series here.
4. Work with me privately
For a limited time you can book in a free diagnosis call with me here, so book in a call today.
