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Australia’s latest inflation has come in, the first data drop for 2026 – correlating to last November – and it isn’t too terrifying. In fact, economists were expecting a headline read of 3.6% growth in the twelve months to Nov; instead, we got 3.4%.
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That was down from 3.8% in October, which really helped to kill the vibes Down Under all through Q4 CY25. That shock was enough to kill what had been a fairly exciting September for the ASX 200, underpinned by the critmins talks between Trump and Albanese back in the ancient history of a few weeks ago.
So with inflation coming in surprisingly cooler, at 3.4%, surely the Australian market would’ve gone gangbusters? Well, not so much. There was an XJO surge, if you want to call it that, once the data dropped at 11.30am AEDT.
But, around an hour later, those quick gains were lost in the churn.
So what do we make of this? Well, for one, you can make the argument that the market is still pricing in a rate hike. That appears inevitable with headline inflation above 3% – the upper end of the much-touted 2% to 3% target band the Reserve Bank of Australia desires to trap inflation within.
So what today’s surprise 3.4% headline CPI read means is that we mightn’t see an RBA hike next month, which had been feared on the back of the October data, where headline inflation heated up to nearly 4%.
The question becomes – when will the RBA cut? That depends on who you ask.
Capital Economics analysts, for their part, see the risk of a hike in February as still very real and not at all ethereal. That’s a different take from Oxford Economics, analysts for which predict a pause next month before ultimately leading to a hike.
“The print was well below expectations for a 3.6% rise, taking some heat off an under-fire RBA. Trimmed mean inflation, the measure the RBA cares most about, eased to 3.2% from a 12-month high of 3.3% in October,” Oxford Economics’ economic research head Harry Murphy Cruise said on Wednesday.
“As the RBA digests the idiosyncrasies of the new monthly CPI measure, it continues to focus on the quarterly measure to inform rate movements. That data lands at the end of the month, with 3.2% being the magic number for trimmed mean inflation.”
The RBA, it’s worth highlighting, recently changed to a more in-depth month-by-month CPI data basket; historically more interested in the quarter-by-quarter read. So we’re dealing in something of a Brave New World of economic data.
But the reason why October’s CPI read came in at 3.8% remains troubling – that was because of the roll-back of electricity rebates, which may have been masking the true impact of inflation.
With that in mind, State Street sees more uncertainty ahead.
“Today’s softer-than-expected CPI print is encouraging, but we anticipate some continued volatility in the data as the impact of electricity rebates gradually fades,” State Street APAC research head Krishna Bhimavarapu said.
Bhimavarapu continued: “This reinforces the case for the RBA to maintain its current stance for an extended period to assess how underlying trends evolve.”
At any rate, if you accept the ASX can be used as a measure of Australian sentiment towards the economy, it appears the market isn’t thinking too differently from what it’s been since last October, as far as RBA rate cut chances go.
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