Australia’s latest inflation data shows only a modest easing, but it may already be outdated.
Figures from the Australian Bureau of Statistics put annual inflation at 3.7% to February 2026, down slightly from 3.8% the month prior. While that suggests some stability, the data was captured before the recent oil shock driven by conflict in the Middle East, an event now expected to push prices significantly higher.
That timing matters. With fuel costs surging, economists are increasingly tipping a renewed spike in inflation, potentially well above the Reserve Bank of Australia’s 2–3% target. Some forecasts suggest inflation could climb into the 5% range in coming months, reinforcing expectations of further interest rate increases.
Under the surface, however, a more contentious story is emerging.
Recent economic analysis indicates that the rise in inflation during the second half of 2025 wasn’t driven by wages or labour shortages, as often suggested, but by increased corporate profits. In fact, the contribution from labour costs declined over that period, while profit margins expanded and became the primary driver of price growth.
This raises serious questions about the current policy approach. The RBA has continued lifting interest rates partly on the assumption that a tight labour market is fuelling inflation. Yet unemployment has edged higher, and wage pressures appear to be easing, not accelerating.
Critics argue this mismatch risks placing unnecessary strain on households, particularly mortgage holders already absorbing higher repayments alongside rising living costs. With fuel prices climbing rapidly, the financial pressure is intensifying.
There are also signs that pricing behaviour may be exacerbating the problem. Fuel prices, for example, have risen quickly following geopolitical tensions, despite the lag typically involved in sourcing, refining and distributing oil. That suggests factors beyond pure cost increases may be at play.
Even if global energy markets stabilise, there’s little expectation that prices will fully unwind. And if inflation continues to be driven more by profit margins than wages, further rate hikes may do little to address the root cause, while continuing to weigh heavily on consumers.
In the meantime, markets are firmly anticipating another rate rise, with all major banks expecting the RBA to act at its next meeting.
For households, the outlook remains clear: cost pressures aren’t going away anytime soon, and interest rates may still have further to climb.