Millions of Aussies with a mortgage are facing fresh pain, with the Reserve Bank ‘primed’ to hike interest rates at its next meeting as inflation continues to rise.
New ABS data released on Wednesday shows the Consumer Price Index (CPI) rose 3.8 per cent in the 12 months to December, up from 3.4 per cent in November.
The trimmed mean – the RBA’s preferred underlying measure because it strips out volatile price swings – rose to 3.3 per cent, up slightly from 3.2 per cent.
Commonwealth Bank and NAB are predicting a rate rise of 25 basis points when the RBA meets next week, while Westpac and ANZ have forecast rates will be held at its current rate of 3.6 per cent.
The largest contributors to annual inflation were housing (5.5 per cent), food and non‑alcoholic beverages (3.4 per cent) and recreation and culture (4.4 per cent).
Treasurer Jim Chalmers was pressed on whether the government was throwing away too much money, with economists blaming the increase on public service spending.
Chalmers immediately shut down the question: ‘No I don’t think so… I don’t think it stands up against the evidence.
‘If public spending was the problem, then we wouldn’t have seen three interest rate cuts last year and the big moderation that we saw in inflation.
Reserve Bank Governor Michele Bullock (pictured) has been battling to keep Australia’s inflation rate between 2 and 3 per cent
‘Since we came to office, we got public spending down from around a third of the economy to closer to a quarter of the economy.
‘We found $114billion in savings, delivered two surpluses, got the debt down by a couple of $100billion as well.
‘And, so, if you look at our record on the budget, what you can see is we’ve been able to get the budget in substantially better nick than what we inherited from our predecessors.
‘The story of the economy in the period covered by these inflation figures is a private sector story and not a public spending story.’
BDO chief economist Anders Magnusson told the ABC the RBA was ‘primed’ to lift interest rates.
‘With inflation now overshooting the Bank’s forecast for two consecutive quarters, the likelihood of a rate hike has increased substantially,’ he said.
‘Markets were already pricing a significant chance of tightening, and today’s result will only strengthen that expectation.’
VanEck head of investment and capital markets Russell Chesler described the latest inflation data as ‘uncomfortably high’.
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Treasurer Jim Chalmerswas pressed on whether the federal government was throwing away too much money, with economists blaming the increase on public service spending
‘Inflation is not moving decisively in the right direction,’ he said.
‘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.’
Goods inflation lifted to 3.4 per cent, pushed up heavily by electricity prices, which surged 21.5 per cent.
Services inflation rose to 4.1 per cent over the year up from 3.6 per cent in November with the strongest increases in domestic holiday travel and accommodation (+9.6 per cent) and rents (+3.9 per cent).
Australians also paid more for meals out and takeaway, up 3.5 per cent, as cafés and restaurants passed on higher wage and ingredient costs.
Food prices continued to climb across the board with meat and seafood up 4.4 per cent, with beef and lamb both jumping more than 10 per cent amid strong international demand.
Fruit and vegetables increased 4 per cent, up from 2.7 per cent in November.
The RBA has been battling to keep Australia’s inflation rate between 2 and 3 per cent. In November, inflation was at 3.4 per cent.
David Koch (pictured) Kochie said the Reserve Bank will be laser‑focused on the December quarter inflation data ahead of its meeting next week to discuss interest rates
The increase in official estimates of inflation led to the Reserve Bank’s decision to leave interest rates unchanged for its last three meetings in October, November and December 2025.
It was the first time since 2024 the Reserve Bank has left interest rates unchanged at three consecutive meetings.
Compare the Market economic director David Koch said the inflation figures were a ‘shock’ and at the higher end of what markets were predicting.
‘It’s not just the number, it’s the trend. It’s the momentum and the direction where things are moving and it puts pressure on the Reserve Bank to think really seriously about putting rates up,’ he said.
‘Six months ago, employment and the jobs market were starting to soften and we thought, great, rate cuts could be on the way. That didn’t last long and now wages are putting pressure on CPI again.
‘The Reserve Bank has always said that the latest data would inform their decisions. This will give them a lot to think about.’
Both the September quarterly CPI data and October monthly inflation data came in hotter than expected, which could be influencing lenders’ decision to lift rates.
This, according to Kochie, is why the Reserve Bank will be laser‑focused on the December quarter inflation data.
Australian mortgage holders were warned last week they may not receive any rate relief over the next 12 months, as banks quietly increase interest rates
But he warned that any increase in interest rates would have a direct and immediate impact on household budgets, particularly for borrowers with larger mortgages.
‘A single 0.25 per cent rate rise could push monthly repayments up by about $94 for someone with a $600,000 mortgage,’ he said.
‘That’s an extra $1,128 a year – money many households simply don’t have to spare when they’re also being hit with higher grocery costs, insurance premiums and energy bills.’
Meanwhile the Australian dollar rose to 70 US cents on Wednesday as currency traders focused on Australia’s low jobless rate of 4.1 per cent in December, which potentially adds to the case for another RBA rate rise.
Besa Deda, chief economist for the accounting and advisory firm William Buck, said the Aussie was gaining in part due to stronger than expected domestic employment data, which had raised the risk that the Reserve Bank might hike rates in February.
She said the Aussie dollar might climb further off the back of the latest CPI figures.
‘I think there is possibility in the near term, particularly depending on what the data shows tomorrow, for the Aussie dollar to break above 70 US cents, probably even maybe 71 US cents,’ she said.
