National

Inflation pressures set to expand despite fuel reprieve

May 27, 2026

economy — The government's move to temporarily cut the fuel excise may help reduce the annual inflation rate. -AAP Image

Inflation pressures are heating up, despite an expected fall in the consumer price index.

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Data released by the Australian Bureau of Statistics on Wednesday is likely to show headline inflation cooled in April.

AMP economist My Bui has tipped the annual rate to fall to 4.4 per cent, from 4.6 per cent the month prior.

The slowdown is largely due to the government's decision to temporarily cut the fuel excise in half.

As a result, the Reserve Bank will likely look through the drop in the headline measure and instead focus on trimmed mean inflation, which gives a better sense of the underlying pulse, Ms Bui said.

AMP forecasts the trimmed mean edged up to 3.4 per cent year-on-year.

"We also see a lot more price rises (through) what we would call the secondary round impacts," she told AAP.

Almost three in four Australian businesses reported that they had been negatively impacted by fuel prices and supply disruptions, according to the ABS's May survey of business conditions and sentiments, released on Tuesday.

Half of all businesses reported operating expenses had risen, with fuel prices and freight and delivery costs the most common culprits.

Even though fuel prices eased, the prices businesses charged tended to lag behind input costs, while fuel surcharges remained commonplace in industries such as construction and logistics.

Prices for household services, like gardening and cleaning, are expected to show a rise of 5.2 per cent, Ms Bui said.

"The RBA pays attention to things like market services ... (such as) hairdressers, household services," she said.

"That does show the underlying pressures in the economy a little bit better, because those categories tend to be sticky, so I do expect them to look at that carefully."

Housing inflation will also be a key focus of the central bank, given it tends to be an early indicator of overall inflation pressures in the economy.

The measure, which includes rents and new dwelling purchases, has been running "red hot" as building material costs soared.

Ms Bui expects another strong rise of 6.4 per cent.

The ABS will also release construction work figures on Wednesday, which will also be watched by the RBA as a sign of the strength of the economy.

Given the data only covers the March quarter, it won't show the full impact of the Iran war.

But it would still provide some insight into whether the RBA's first two rate hikes have had any impact on activity or if the economy was still running hot, Ms Bui said.