CBA sees Australian March CPI at 4.6%yr, trimmed mean at 3.5%yr, and calls for a 25bp RBA hike in May. Westpac warns the Iran energy shock will broaden through H2 2026.

Summary:

• CBA forecasts headline CPI rose 1.1% in March, lifting the annual rate to 4.6%
• CBA expects trimmed mean inflation of 0.9% for Q1 2026, pushing the annual rate to 3.5%, which would mark the third consecutive quarter at that pace or above
• CBA calls for a 25bp RBA rate rise in May to 4.35%, though flags the decision as line ball between inflation and growth risks
• Westpac estimates a 1.5% quarterly CPI gain, or 4.2% annually, with risks seen as balanced
• Westpac forecasts trimmed mean of 0.93% for Q1, lifting the annual rate to 3.5% from 3.4%
• Both banks attribute the bulk of the energy shock so far to auto fuel, with the Iran conflict having begun on 28 February
• Westpac warns the impact will broaden significantly in Q2 and through H2 2026, with trimmed mean seen hitting 1.0% per quarter and the annual rate peaking at 4.0%

Two of Australia’s largest banks are forecasting a sharp rise in consumer prices for the March quarter and warning that the energy shock from the Iran war is only beginning to filter through the economy, with both lining up behind a potential rate rise at the Reserve Bank of Australia’s May board meeting.

Commonwealth Bank of Australia expects headline inflation to have risen 1.1% in March alone, pushing the annual rate to 4.6%. On the policy-relevant trimmed mean measure, CBA forecasts a 0.9% quarterly gain that would lift the annual rate to 3.5%. Notably, that would mark the third consecutive quarter in which the trimmed mean has risen by 0.9% or more, a streak that CBA argues justifies a response from the central bank. The lender is explicitly calling for the RBA to raise the cash rate by 25 basis points at its 4-5 May meeting, taking it to 4.35%. CBA concedes the decision will again be close, with board members needing to weigh upside inflation risks against a softening growth outlook.

Westpac’s numbers are slightly different but tell a broadly similar story. The bank estimates a 1.5% quarterly CPI gain, producing an annual rate of 4.2%, and puts its trimmed mean forecast at 0.93% for the quarter, marginally above CBA’s figure, with the annual pace lifting to 3.5% from 3.4%. Westpac describes its headline estimate as balanced in terms of risk at two decimal places.

Both banks point to energy as the primary driver so far, with auto fuel bearing the brunt of the price surge following the outbreak of the Iran conflict on 28 February. Because the war started late in the quarter, its initial impact was concentrated in March and largely limited to fuel. Westpac warns this is just the opening chapter. The bank describes the Middle East conflict as the largest energy shock since the oil crises of the 1970s and 1980s, and expects the inflationary impact to broaden materially in the June quarter and through the second half of the year. It forecasts trimmed mean gains of 1.0% in both the June and September quarters, with the annual pace peaking at 4.0% in the latter part of 2026.

The data due on Wednesday (0130 GMT/ 2130 US Eastern time Tuesday) will be closely watched by markets and the RBA alike, with the print now carrying unusual weight given the backdrop of an external supply shock colliding with an economy that has already seen three consecutive quarters of stubborn core inflation.