Inflation has fallen further than expected but remains high, with economists saying interest rate hikes will probably be delayed but remain on the table.
Consumer prices rose 3.4% in the year to November, below the 3.6% markets had expected, Australian Bureau of Statistics data showed on Wednesday.
Inflation had surged to 3.8% in the year to October, prompting Commonwealth Bank and NAB economists to predict the Reserve Bank would hike interest rates in February.
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Trading immediately after the surprise inflation fall signalled greater confidence rates would stay lower for longer, with the Australian dollar slipping from 67.38 US cents to 67.24 and the ASX200 jumping from 8,700 to 8,734 index points.
Financial markets were betting there was a two-thirds chance rates would stay on hold when the RBA’s interest-rate setting board met in February.
Markets expect a hike to come by June, with a strong chance of a second before December. On Wednesday, NAB economists continued to predict a hike in February and in May.
Stephen Smith, partner at Deloitte Access Economics, said a hike in February would be premature as it was not clear why inflation had resurged in recent months.
“Any policy response should be careful and cautious, rather than impulsive,” Smith said.
ANZ economists predicted the RBA would face a “close decision” but leave rates on hold, as they pointed to some categories reversing their past price increases.
Retailers offered big discounts amid Black Friday sales, sending clothing and footwear prices down 3.1% from October to November and furniture prices down 4.6%.
Domestic holiday prices fell 4.1% in the month while international holiday prices unexpectedly slipped 0.6%, suggesting prices in parts of the inflation basket were easing, Diana Mousina, an AMP economist said.
“It’s good to see we are getting this moderation and the surprising price increase we have had in the past few months … could just be one-offs,” Mousina said.
Health costs also slipped 0.5% from October to November. Bulk-billing incentives were expanded on 1 November 2025, boosting bulk-billing rates and cutting households’ out-of-pocket doctor costs.
Persistent price rises in other key categories saw some economists warn rate rises would still be needed in 2026.
Housing costs overall jumped 1.1% between October and November. The category rose 5.2% over the year to November, due to a 4% rise in rents, 2.8% rise in new home construction and 19.7% rise in electricity costs as rebates lapsed.
Food costs also picked up 3.3% in the year to November, with meals out and takeaway up 3.5% on higher wage and ingredient costs, and meat and seafood up 3.9% due to high overseas demand for Australian produce.
Paula Gadsby, senior economist at EY, said Wednesday’s monthly data showed inflation would remain high in forthcoming December quarter data, to be released the week before the RBA meets.
“For the Reserve Bank to reverse this recent trend and get inflation moving back to [2.5% or] the mid-point of the target band, interest rates will need to be lifted in the first half of 2026,” Gadsby said.
