Australia’s inflation may finally be slowing, but it’s still not enough to put all concerns to rest. New data shows inflation fell to 3.4% for the year ending November, which is lower than expected — a much-needed relief. However, this drop doesn’t mean that interest rate hikes are off the table just yet.
A Surprising Fall in Inflation
According to the Australian Bureau of Statistics, inflation was expected to be 3.6%, but the surprise dip to 3.4% is offering some breathing room. For the financial markets, this news signals a greater chance that the Reserve Bank of Australia (RBA) may hold off on raising rates when it meets in February. As expected, this shift caused the Australian dollar to slip slightly, and the ASX200 jumped. Still, experts warn that while rate hikes may be delayed, they’re hardly off the table.
Optimism, But Caution Remains
It’s not all good news, though. While the easing of inflation is promising, economists are quick to point out that price rises in some key areas — particularly housing, food, and electricity — may still require the RBA to take action sooner rather than later. Analysts are predicting that the RBA will likely hold rates steady for now, but rate hikes could still happen by June or December.
Stephen Smith from Deloitte Access Economics suggests that a rate hike in February would be premature, given that it’s unclear why inflation had surged in some categories. He stresses that policy responses should be “careful and cautious,” as the causes of recent price surges are still a bit murky.
Retail and Service Prices Easing
There were some welcome signs that prices in certain categories are starting to ease. Clothing and furniture prices fell 3.1% and 4.6% from October to November, respectively, helped by Black Friday discounts and fewer supply chain disruptions. Similarly, holiday prices — both domestic and international — saw a surprising dip, as did healthcare costs, which dropped by 0.5%. These price decreases are giving some experts hope that inflation might just be moderating in certain sectors.
The Housing and Food Strain
However, housing costs remain a major concern. Prices jumped by 1.1% in just one month (October to November), and food costs also rose by 3.3%, reports The Guardian. It’s clear that these two areas, combined with rising energy costs, will continue to put pressure on Australian households. Rent alone saw a 4% rise over the year, while electricity prices surged by 19.7% as rebates expired.
These persistent price increases mean that while inflation is slowing, it hasn’t been fully tamed. According to Paula Gadsby, an economist at EY, interest rates may need to be lifted in the first half of 2026 to keep inflation under control.
A Waiting Game
With inflation moderating but still high, it’s clear that the next few months will be a waiting game. The RBA will need to decide whether to hike rates again or hold steady, with markets betting on a rate increase later in the year. For now, Australians can only brace for what’s to come. Whether it’s more rate hikes, rising prices, or a balance of both, it’s clear that inflation and interest rates will remain major talking points in 2026.
