The Australian Bureau of Statistics has released the latest Consumer Price Index (CPI) inflation data for the month of December CY25, with the basket now up to 3.8% – beating expectations for a 3.6% read-out, which has more or less galvanised markets’ expectations for a rate hike from the RBA next month.
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This isn’t necessarily belief-shattering, given there was already a 50% chance there’d be a hike baked into money markets before the ABS data came out.
The ASX200 was originally demonstrating some resilience to the news of higher-than-expected inflation, but an hour later, the reality of the implications here appeared to kick in.
Since today’s data came out, Aussie money market odds have conversely climbed higher, but it’s true to say the local market has been bracing for a rate hike since October last year, when the ABS released hotter-than-expected CPI data, largely driven by the removal of electricity rebates in the states.
And again, here we are: The housing component of inflation climbed +5.5% higher in the twelve months to December, driven by household electricity prices climbing over +20% in the same timeframe.
Which is really starting to look a lot like gov’t rebates have been producing ‘artificial disinflation,’ which I’ve argued before on the HotCopper Wire.
Treasurer Jim Chalmers used his time on-screen during a lunchtime conference to effectively blame the private sector, framing this as a good thing, but ultimately dogwhistling to taxpayers: “This isn’t due to gov spending.”
No, just the winding back of gov’t rebates when it comes to electricity prices, but hey. Let’s not worry about that. (Chalmers would prefer we focus more on the ALP’s moves to offer student debt relief and offer more funding for bulk billing.)
Analysts are mixed on what exactly Australia’s inflationary trajectory looks like through CY26 now, too. While PMI indicators remain steady, there’s this whole electricity issue, which could easily be made worse if the East Coast states really do need to start importing gas at some point this year.
Trimmed Mean Inflation (TMI), which basically knocks out food and fuel prices, remains calmer at 3.3% – still outside the target band, but less volatile than 3.8%. A happier number, perhaps. But still, the fact remains that 3.3% TMI points to sticky inflation, which then suggests at least one more rate hike.
A handful of analysts are expecting several rate hikes this year, though those analysts then have their detractors. Who knows, really, but for now it’s looking likely we’ll see a rate hike to kick off the second month of the new year.
Which is a big backwards step, given we cut rates three times last year, but the shock of that already played out on the ASX last October, as far as my mind sees it.
And one more thing to note: The AUD’s rapid ascension to 70c (against the USD) has surprised many forex analysts and economists, a side-effect of an ongoing diminishing faith in the USA’s management of its own and thus global economy from other countries. That mightn’t be a little anomaly – especially not if a rate hike leads to further bets on the AUD, which tends to be the case.
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