Inflation data signals potential RBA rate hike amid rising housing and energy costs

Repayments on home loans and other debts now look likelier to rise after official figures showed inflation picked up at the end of 2025, increasing pressure on the Reserve Bank of Australia (RBA) ahead of its first policy meeting of the year.

According to the Australian Bureau of Statistics, the Consumer Price Index rose 3.8% over the year to December 2025, up from 3.4% in November, while prices increased 1.0% in the month of December. The ABS said the trimmed mean , the RBA’s preferred gauge of underlying inflation , climbed to 3.3% annually in December from 3.2% a month earlier. Quarterly measures released alongside the monthly data showed the CPI up 0.6% in the December quarter, or 3.6% on an annual basis, and a quarterly trimmed mean of 0.9%, leaving the annual trimmed mean at about 3.4% for the quarter, above forecasters’ expectations.

Housing was the dominant driver of annual inflation, the ABS reported, with shelter costs, food and non-alcoholic beverages and recreation and culture among the largest contributors. Rental inflation rose to 4.0% , the first quarterly increase in seven quarters , while the price of new dwellings accelerated to 2.5%, its strongest year‑on‑year rise in a year. Electricity also had a major influence on the headline rate: the ABS noted a 21.5% increase in electricity costs in the year to December, largely reflecting the timing and exhaustion of state government rebates in Queensland and Western Australia; excluding those rebates, electricity inflation was about 4.6% over the year, unchanged from November.

Economists said the hotter-than-expected reading makes a February interest‑rate rise more probable. Capital Economics’ Abhijit Surya called the result “all but certain that the Reserve Bank of Australia will raise interest rates at its meeting next week”. BDO chief economist Anders Magnusson said in a statement the result “reinforces the message from the September quarter” that underlying price pressures have proved more persistent than anticipated and left the RBA “primed” to lift rates. And RSM Australia’s top economist Devika Shivadekar described the call as a “narrow” one, putting the odds slightly in favour of a hike.

Market pricing and several major banks have adjusted their forecasts in response. According to a report by ABC News, economists at Westpac and ANZ have moved to expect a 25 basis‑point increase at the next board meeting. The RBA’s board is due to deliberate on monetary policy in the first week of February, with the meeting scheduled for February 3, 2026, according to reporting.

The cautious stance the central bank has maintained in recent months adds context. The RBA held the cash rate at 3.6% in November and again in December 2025, with Governor Michele Bullock and other officials noting some recent inflation fluctuations reflected temporary factors while signalling readiness to tighten policy if required. The bank has said it assesses inflation over a one‑to‑two‑year horizon.

If the RBA opts to raise the cash rate next week, borrowing costs for households and businesses would climb, increasing mortgage and other debt repayments. Several economists warned that a pre‑emptive rise now could be aimed at preventing longer‑lasting inflation dynamics that would require steeper tightening later.

The ABS release underlines the uneven nature of the price recovery: while some measures have moderated from mid‑2025, others , notably housing and energy‑related components once rebates are stripped out , are applying upward pressure. That mix has left policymakers facing a delicate judgement about whether the recent overshoot represents a sustained shift or a string of temporary distortions.