Housing costs contribute to hotter-than-expected inflation print
The annual inflation rate hit 3.8% in December 2025, comfortably overshooting market expectations of 3.6% and far exceeding November’s 3.4% print.
On a month-on-month basis, inflation topped 1% against market expectations of 0.7%.
Quarterly trimmed mean inflation, which the Reserve Bank of Australia (RBA) keeps a close eye on when setting monetary policy, hit 0.9%. While this was lower than the previous month, it too exceeded market expectations.
The largest contributors to annual inflation were Housing (+5.5%), food and non-alcoholic beverages (+3.4%), and recreation and culture (+4.4%).
Today’s result does not bode well for those hoping for a cash rate cut when the RBA’s Monetary Policy Board convenes next Tuesday to decide if rates should stay at 3.6%, rise to 3.85%, or, in a highly unlikely scenario, drop to 3.35%.
Ahead of the Board’s decision, Commonwealth Bank remains adamant that a 25-basis-point rate hike is on the agenda. NAB is predicting as many as two cash rate hikes in the first half of 2026, while Westpac and ANZ have kept their forecast on hold at 3.6% for the moment.
Markets will be keeping a close eye on any changes to those forecasts following today’s inflation print.
“Inflation ticked up today higher than we’d like, but we know that doesn’t make it any easier for people,” Chalmers told reporters in Brisbane on Wednesday afternoon.
Treasurer Jim Chalmers comments on inflation
“Inflation ticked up today higher than we’d like, but we know that doesn’t make it any easier for people,” said Labor treasurer Jim Chalmers, although the denied that public spending was the underlying cause.
“If public spending was the problem, we wouldn’t have seen interest rates come up," Chalmers told reporters in Brisbane, adding: “The Reserve Bank hasn’t been highlighting public spending as a factor in their decisions, not in their public statements, not privately as well."
“My job is to focus on this inflation, the productivity challenge and this global uncertainty. Those will be the three key influences on the budget that Katy Gallagher and I release in May," he added.
