Economists are concerned over a possible cash rate hike next week after the Australian Bureau of Statistics (ABS) shared data that confirmed a jump in the consumer price index (CPI) in December 2025.
According to the ABS, CPI inflation rose 3.8 per cent in the 12 months to December last year. This is up from a 3.4 per cent lift in November.
The largest contributor to annual inflation in December was housing, up 5.5 per cent, followed by food and non-alcoholic beverages (up 3.4 per cent) and recreation and culture (up 4.4 per cent).
The trimmed mean of inflation, a key figure that the Reserve Bank of Australia keenly watches, was 3.3 per cent in the 12 months to December 2025, with that up from 2.3 per cent in the 12 months to November.
CreditorWatch chief economist Ivan Colhoun also pointed out that the CPI trimmed mean quarter on quarter rose by 0.896 per cent, which followed a 1 per cent lift in the September quarter.
Colhoun said this meant that, for the second quarter in a row, trimmed mean inflation was on the high side of the RBA’s forecast – which was 0.75 per cent for this quarter.
“The RBA December Board Minutes highlighted that in February the Board would consider both the persistence of inflation and the likelihood that the staff’s forecast that a return to 2.5 per cent inflation would be achieved,” Colhoun said.
“Today’s data suggests Australian inflation is persisting at an above target rate (likely in the 3-3.25 per cent range) and doesn’t provide signs of or greater confidence that inflation will return to target as forecast with unchanged policy.
“The recent pick-up in consumer spending, very low December unemployment rate and the strength of commodity prices, which will also provide a boost to activity in the large mining sector, are also important developments that will need to be incorporated into the RBA’s updated forecasts.”
The December monthly trimmed mean was 0.23 per cent, which Colhoun called a “bit better” than the quarterly outcome, but noted that monthly trims have been higher in the first months of recent quarters.
He said this also suggests that core inflation has stabilised a bit above the rate required to achieve 2.5 per cent inflation.
“As per our CPI preview, there just isn’t enough of the CPI demonstrating sufficient softness to offset the large part of the CPI that continues to run at a 3 per cent or above rate. Over the past year, 27 per cent of the CPI ran at a 2.5 per cent or lower rate, while 73 per cent ran at an above 3.4% rate.
“It’s therefore not plausible that the RBA staff can forecast a return of inflation to target in next week’s update, without at least one to two interest rate rises, with the first likely to be delivered at Tuesday’s February Board Meeting.”
Across the Australian market, annual goods inflation was 3.4 per cent in the 12 months to December, up from 3.3 per cent to November. The main contributor was electricity, which rose 21.5 per cent in the timeframe.
Annual services inflation was 4.1 per cent in the 12 months to December, up from 3.6 per cent to November. The main contributors were domestic holiday travel and accommodation (up 9.6 per cent) and Rents (up 3.9 per cent).
Inflation in the clothing and footwear sector was split, with annual CPI up 3.4 per cent, but down by 0.9 per cent in seasonally adjusted terms. This likely points to ongoing discounting across the sector in the lead up to Christmas and during Boxing Day sales.
Across the states and territories, annual fashion inflation was driven by Hobart and Brisbane, where fashion inflation rose by 5.4 per cent and 4.1 per cent respectively. At the other end of the scale, Adelaide posted the lowest annual growth in fashion inflation at 1.1 per cent, followed by Canberra at 1.6 per cent.