New ABS data show persistent price pressures, with analysts warning rate hikes could come sooner.Australia’s Consumer Price Index (CPI) rose 3.8 per cent in the 12 months to December 2025, according to the latest data from the Australian Bureau of Statistics (ABS).
Michelle Marquardt, ABS head of prices statistics, said: “The 3.8 per cent annual CPI inflation to December was up from 3.4 per cent to November.”
Housing is the largest contributor to annual inflation in December, rising 5.5 per cent, followed by food and non-alcoholic beverages, up 3.4 per cent, and recreation and culture, up 4.4 per cent.
“Trimmed mean inflation was 3.3 per cent in the 12 months to December 2025, up from 3.2 per cent in the 12 months to November 2025,” Marquardt said.
Annual goods inflation rose 3.4 per cent in the 12 months to December, up from 3.3 per cent to November, driven largely by electricity prices, which rose 21.5 per cent over the year.
Annual services inflation increased to 4.1 per cent in the 12 months to December, up from 3.6 per cent to November, with domestic holiday travel and accommodation rising 9.6 per cent and rents up 3.9 per cent.
Annual housing inflation stands at 5.5 per cent to December, driven by electricity costs, which rose 21.5 per cent over the year, reflecting state government electricity rebates in Queensland and Western Australia being used up by households.
This is compared to a 19.7 per cent rise in the 12 months to November.
Excluding the impact of Commonwealth and state government electricity rebates, electricity prices rose 4.6 per cent in the 12 months to December, unchanged from November and reflecting annual price reviews by energy retailers in July 2025.
The quarterly movement for the CPI is 0.6 per cent in the December quarter 2025, while the trimmed mean (pre-October 2025 basis) rises 0.9 per cent over the quarter.
VanEck head of investments and capital markets Russell Chesler said inflation remains above the Reserve Bank of Australia’s (RBA) target band and is not moving decisively lower.
“Inflation remains uncomfortably higher than the RBA would like and while there was a modest pull-back in the previous reading to 3.4 per cent, we’re well and truly outside of the RBA’s target band of 2 to 3 per cent.
“Year-on-year inflation is at 3.8 per cent and the trimmed mean has increased to 3.3 per cent. Inflation is not moving decisively in the right direction.
“With unemployment still low at 4.1 per cent, household spending resilient and property prices continuing to rise, it is no longer a question of if rates move higher, but when the RBA acts and how many hikes ultimately follow this year,” Chesler said.
Chesler warned while markets have predicted two rate hikes to be delivered this year (beginning in May), this latest CPI print could see the central bank lift rates next week (3 February).
“A number of factors are continuing to put upward pressure on prices. Electricity costs remain elevated, new dwelling construction costs are proving slow to unwind, and higher global tariffs are beginning to flow through supply chains into consumer prices.
“Services inflation also remains sticky, which historically has been one of the hardest components to bring back under control,” he added.
However, Chesler stated the inflation backdrop “is supportive” for the Aussie dollar.
“Expectations of tighter monetary policy, combined with a softer US dollar and strong commodity prices, have helped lift the AUD, which is now trading above the US 70 cent level – which we have not seen since February 2023.
“With commodities such as gold, copper and critical minerals trading at elevated prices, momentum behind the Australian dollar has been building after an extended period of weakness. If these conditions persist, the AUD could very well continue to strengthen,” Chesler said.
Betashares chief economist David Bassanese said trimmed mean inflation remained elevated in the December quarter, with the quarterly increase easing only marginally to 0.9 per cent, signalling ongoing above-target inflation pressures.
He said demand-driven price pressures persisted, with new home purchase costs accelerating due to strong demand and higher labour and material costs, while rental inflation remained firm.
Holiday and travel costs surged on strong seasonal demand around Christmas, school holidays and major events, which he noted could be partly one-off but still difficult for the Reserve Bank to ignore amid broader price pressures. Bassanese added that a notable offset was easing consumer durable prices, with household textile prices falling after strong gains in previous quarters.
“All up, it appears to be Game, Set & Match for a rate rise at the February policy meeting. My base case is that the RBA will raise rates by 0.25 per cent, taking the cash rate to 3.85 per cent,” he said.
“What’s more, if the March quarter 2026 CPI report is also firm (with trimmed mean quarterly inflation of 0.8 per cent or more), the RBA might also raise rates again at the May policy meeting.
“To my mind, two rate hikes – given our highly indebted and interest-rate-sensitive economy – should be more than enough to dampen economic growth again and rein in ongoing inflation pressures in areas such as housing, travel and hospitality.”
