CPI Cools to 3.7% But Banks Warn Energy Shock Could Trigger More Hikes — What Borrowers Need to Know Before May 5

Australia's headline Consumer Price Index (CPI) rose 3.7% in the year to February 2026, down from the previous month but still well above the Reserve Bank of Australia's 2–3% target band. Despite the modest easing, major banks have issued fresh warnings that energy price shocks could reignite inflation pressure — pushing back the timeline for any rate relief.

What the February CPI Data Shows

The Australian Bureau of Statistics (ABS) confirmed the annual CPI figure of 3.7% for February 2026, reflecting a gradual cooling from the elevated levels seen throughout 2025. Key contributors to ongoing inflation include:

• Housing costs: Rent and construction expenses remain elevated due to persistent supply shortages
• Insurance premiums: Rising sharply as climate-related risks reprice property coverage
• Energy prices: Still volatile, with banks specifically flagging this as the next potential inflation trigger

The RBA last moved the cash rate to 4.10% on 18 March 2026. The next scheduled decision is 2:30 PM on 5 May 2026.

Why Banks Are Warning of More Hikes

Despite the headline CPI easing, Australia's major banks have flagged that the path to rate cuts remains uncertain. Their concern centres on:

Energy price volatility: Global energy markets remain unsettled, and a spike in electricity or gas costs could push services inflation back up sharply — the sector where the RBA has most struggled to bring prices under control.

Stubborn services inflation: Core services inflation, which excludes volatile items, has been sticky. The RBA has consistently said it needs to see sustained evidence of cooling before pivoting.

Wage growth: With average weekly earnings running at $2,051 (ABS November 2025 data), wage pressures remain part of the inflation equation.

What This Means for Borrowers

The May 5 meeting now represents a critical decision point. Two scenarios are on the table:

For borrowers on variable rates, every 0.25% increase adds approximately $65–$90 per month to repayments on a $500,000 loan.

Non-Bank Borrowers Face Different Dynamics

Non-bank lenders like MPFG Capital operate outside the direct transmission mechanism of RBA rate changes, but they are not immune. Non-bank lending rates typically reflect:

• Wholesale funding costs: Which have risen alongside official rates
• RMBS market conditions: Still functioning well, as evidenced by recent billion-dollar issuances
• Credit risk appetite: Non-banks continue to approve borrowers rejected by major banks, but assessment criteria remain rigorous

The good news for MPFG's clients — particularly self-employed borrowers and those with alternative documentation — is that non-bank assessment of borrowing capacity focuses on actual income rather than PAYG benchmarks, potentially preserving more options even as mainstream bank lending tightens.

What Should Borrowers Do Before May 5?

1. Review your rate: If you're on a variable rate, model what another 0.25% hike does to your repayments
2. Explore fixed-rate options: Some non-bank lenders still offer competitive 1–3 year fixed rates
3. Check your borrowing capacity now: Capacity calculations may change after May 5
4. Speak to a broker: Particularly if you're self-employed or were recently declined by a major bank

MPFG Capital specialises in financing for self-employed borrowers, new migrants, and those who don't fit the major banks' standard templates. With the next RBA decision less than six weeks away, now is the time to explore your options.

This article is general information only and does not constitute financial advice. Contact a licensed broker for advice specific to your circumstances.