Inflation Down Under has fallen slightly, but near-term rate cuts remain unlikely.
The Australian Bureau of Statistics (ABS) released its monthly consumer price index (CPI) for November on Wednesday, showing that both headline CPI and trimmed mean inflation eased slightly during the month.
Headline CPI rose 3.4% in the year leading up to November, down from 3.8% in October. Trimmed mean inflation — which measures underlying inflation by stripping out goods with volatile prices changes and what many consider a better indicator of inflationary pressures — increased 3.2% during the same time period, down from 3.3% in the 12 months leading up to October.
While the latest figures may offer some relief to mortgage holders and investors across the nation — many of whom have been under pressure from persistent inflation and rising living costs — they are unlikely to be enough to prompt the Reserve Bank of Australia (RBA) to cut interest rates at its next meeting.
The RBA has remained firm in its commitment to its 2% to 3% inflation target, and has made it clear that rates will not be reduced until inflation is firmly back within that range.
Moreover, September's quarterly CPI reading — which many economists believe is a clearer measure of underlying inflation because it tracks trends in the market — revealed that both headline CPI and trimmed mean inflation were on the rise.
To the dismay of mortgage holders everywhere, all four of Australia's Big Four banks have said the RBA is done cutting rates for the foreseeable future — with some expecting a rate hike in 2026. Commonwealth Bank (CBA) and National Australia Bank (NAB) have said they expect the bank to increase the official cash rate (OCR), while ANZ and Westpac have forecasted the bank will hold steady at its current rate of 3.6%.
The RBA slashed rates three times in 2025 — in February, May and August — igniting market momentum and a wave of FOMO among both current mortgage holders hoping to upgrade and would-be homeowners excited about entering the property market. But the bank hit pause at the two subsequent meetings, pointing to stubborn underlying inflation as the reason for holding steady.
"We do see risks on both sides," Illiana Jain, an economist at Westpac, told Australian Broker. "But as of the moment, we do expect the RBA to remain on hold for 2026."
Adelaide Timbrell, a senior economist at ANZ, added in a note: "There is also no change to our interest rate view following this release. We expect the RBA to hold the cash rate at 3.60% at its monetary policy board meeting next month. It will, however, be a close decision, and we’d expect a rate hike to be explicitly discussed."
In November, education and housing were the largest contributors to inflation. Housing rose 5.2%, down slightly from October at 5.9%.
Rents also eased slightly, up 4% in the 12 months to November, compared with a 4.2% increase in the 12 months to October. The modest easing in annual inflation for rents was driven by stable vacancy rates in most of Australia's capital cities, according to the ABS. Still, if you strip away the Commonwealth Rent Assistance (CRA), rents have still risen in the last year. Excluding the government program, rents would have increased 4.3%.
Meanwhile, new dwelling prices rose 2.8% in the 12 months to November, up from 1.7% in October. Price hikes are being driven by project home builders increasing costs to keep up with demand.
The RBA meets again to discuss monetary policy on 2 and 3 of February.
