The Reserve Bank is more likely to hike rates again, and potentially twice before the end of the year, after new figures revealed inflationary pressures showed no signs of easing in 2026.

Annual inflation stayed at a high 3.8% in January, as the end of government subsidies drove electricity costs up by 19% in the month and left power bills nearly a third higher than they were a year earlier.

The whiplash caused by the end of the federal and state electricity rebates has largely explained the doubling in the headline rate of inflation in just over six months.

Even after removing these wild swings in prices, however, the latest Australian Bureau of Statistics figures showed the central bank’s preferred measure of underlying inflation climbed to 3.4% in the year to January, from 3.3% in the month before.

With the May budget looming as a major test for the Albanese government’s economic credentials, Jim Chalmers on Wednesday acknowledged that “inflation is higher than we’d like and for longer than we’d like”.

“We know that these sorts of numbers are difficult news for people who are under pressure,” the treasurer said.

“That’s why a big focus of the budget will be inflation, but also productivity … against the backdrop of this global economic uncertainty.”

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Inflation remains strong in areas many Australian households will struggle to avoid.

The ABS figures showed climbing prices for essentials, including a 3.9% rise in rents and a 4.2% jump in medical and hospital services in the year to January.

Already high construction costs continued to climb at a rapid pace, with home building inflation accelerating to 3.5%, from 3% in December.

Stephen Smith, a partner at Deloitte Access Economics, said the ongoing price pressures were “the political payback of a populist policy” by federal and state governments to subsidise energy prices from mid-2023.

The ongoing strength in consumer price growth “means a pre-budget rate rise remains on the table”.

Smith said the combination of relatively soft growth and high inflation were a hallmark of an economy struggling with low productivity growth, and highlighted the urgency of the reform challenge.

“Unless the federal budget meets the moment and outlines significant economic and tax reform, growth will stagnate and inflation will persist for longer than necessary.”

Jo Masters, the chief economist at investment bank Barrenjoey, said there were “warning signals” that inflation would prove more persistent than feared, and pencilled in a rate hike in August, on top of an existing call for a move in May.

That would entirely reverse the monetary policy relief the RBA delivered in 2025 and return the cash rate to its previous peak of 4.35%.

An unemployment rate at a low 4.1%, accelerating domestic demand, high labour costs in the context of low productivity, and evidence that the economy was running beyond its capacity was part of a “broader economic picture” suggesting the central bank would need to hike rates more than previously thought.

Analysts and investors remained relatively sanguine about a rate hike as soon as March.

Financial markets have upped their bets on a May rate hike to 95%, from 84% immediately before the ABS data, according to NAB.

The chance of a second rate hike before the end of the year climbed from about 40%, to 60%.