CPI continues to rise, but May cash rate hike not a done deal – latest data reveals

Key takeaways

Headline inflation has jumped, but the spike is largely driven by volatile factors like electricity and fuel rather than broad-based price pressures.

Underlying inflation remains more stable, although the quarterly trend shows it is still edging higher, which will concern the RBA.

The major banks are aligned in expecting a rate hike in May, with some forecasting further increases through the middle of the year.

Even modest rate rises are adding up, with borrowers facing hundreds of dollars in extra monthly repayments if multiple hikes occur.

Many households may lose their repayment buffers, meaning borrowers need to prepare now for a period of higher interest rates and tighter cash flow.

The latest inflation figures are a timely reminder that while the headline numbers grab attention, it’s what’s driving them beneath the surface that really matters for interest rates, household budgets, and ultimately property markets.

According to the latest data, headline inflation jumped to an annual rate of 4.6% in March, up from 3.7%.

However, this was primarily due to two volatile factors: electricity, which rose to an annual rate of 25.4% on the back of the end of the rebates, and fuel prices, which rose 24.2% as a result of the war in the Middle East, and 32.8% between February and March.

Canstar notes that trimmed mean, which removes much of the volatility, stabilised in March at 3.3% in seasonally adjusted terms.

However, looking across the quarter, it rose to 3.5% – the third rise in three consecutive quarters.

Big four banks all expect May cash rate hike

All four big bank economic teams are forecasting a 0.25 percentage point cash rate hike next Tuesday, according to Canstar.

CBA, NAB and ANZ expect the cash rate to remain on hold thereafter, while Westpac predicts there will be two more in June and August.

Impact of a 0.25 cash rate hike in May

Canstar's data show that for someone with a $600,000 mortgage and 25 years remaining at the start of the hikes, a 0.25 percentage point cash rate hike in May would increase a borrower’s monthly repayments by $91.

Across what would then be three hikes for the year in February, March and May, the total increase would be $272.

Some repayment buffers could vanish if the RBA hikes on Tuesday

A further 0.25 percentage point rate hike, should it materialise next week, could wipe out repayment buffers households have built over the past year, according to Canstar.

That's because borrowers who kept repayments the same despite last year’s three 0.25 percentage point cash rate cuts would effectively be back where they started.

This is likely to affect a large share of customers with CBA, NAB and ANZ home loans, as these banks held direct debits steady after each cut, unless borrowers actively reduced them.

Borrowers should brace for higher repayments and act now, particularly if Westpac’s cash rate forecast plays out, because the window to get ahead of further increases is closing fast.

How Australia’s inflation and cash rate compare around the world

Australia stands out with one of the highest cash rates around the world at 4.10%, following back-to-back hikes, while inflation remains relatively elevated compared to economies globally, according to Canstar.

At the same time, unemployment is comparatively low in Australia, highlighting a resilient labour market.

Canstar.com.au data insights director, Sally Tindall says:

"A hike on Tuesday would effectively neutralise all three of the rate cuts we saw in 2025, taking the cash rate back to where it was at the start of last year.

For those borrowers who didn’t adjust their repayments when the cash rate was on the way down, a hike on Tuesday will spell the end of this repayment buffer.

For those paying the minimum, a 0.25 percentage point increase in May would add about $91 a month to their monthly repayments on a $600,000 loan with 25 years remaining.

Across what would then be three hikes, the total increase would tally up to $272, not as a one-off hit, but every single month for the foreseeable future.

Do the maths on a hike on Tuesday. In fact, do the maths on a further three cash rate hikes as per Westpac’s forecast and make sure you can clear this amount.

While this prediction is still an outlier, it’s better to be overcooked on the mortgage than underdone.”

End note

In a climate like this, the smart move isn’t to react to every headline, but to stay ahead of the trend, stress test your finances, and make sure you’re positioned for a scenario where rates stay higher for longer than many currently expect.

About Dorian Traill Dorian is a Senior Wealth Planner at Metropole and helps develop a tailored, individualised wealth plan specifically for the client’s circumstances. Dorian’s career in property and finance started in 1997 as a sales agent in Brisbane before he switched to mortgage broking. He has been advising clients on how to successfully grow their wealth through property for a number of decades.