Last updated: November 12th, 2025
Few Aussies were surprised when the Reserve Bank of Australia delivered the year’s third interest rate cut in August.
Inflation’s downward momentum had given everyone hope for a cutting cycle that would extend into 2026.
The June quarter Consumer Price Index (CPI) print had shown the annual inflation rate was the lowest it had been since early-2021.
Instead of another cut in November, the RBA held. And chatter erupted about possible future rate hikes.
| Key Takeaways: |
|---|
| Inflation has risen with the headline CPI at 3.2% and trimmed mean at 3.0%, mainly due to electricity — but households are still paying more for essentials. |
| Rents and services like healthcare and education are still hitting hip pockets hard, reflecting domestic price pressures. |
| Australia’s inflation and rate-cutting cycles have lagged major economies like the US, but our progress isn’t out of step with global counterparts. |
The key data points driving the latest decisions are:
- Headline inflation is now 3.2%, experiencing the highest quarterly rise since March 2023.
- The critical trimmed mean figure also rose to 3.0%. It’s the first annual rise in the rate since late 2022. The critical trimmed mean figure fell to 2.7%, down from 2.9% the previous quarter.
Is inflation spiralling again? Is the easing cycle dead in its tracks?
The markets are not optimistic. And most economists have abandoned expectations of further easing until at least mid-2026.
Will 2026 Bring More Inflation Relief?
On the one hand, the effect of 13 interest rate rises from the RBA across 2022-23 did seem to reduce price pressures.
On the other hand, household spending has been rising, and the cost of labour remains high even as productivity stagnates.
Both factors encourage businesses to lift prices.
Additionally, the September quarter saw an unwinding of government subsidies, and an increase in electricity prices.
Complicating matters is the way President Trump’s extraordinary tariffs have led to financial market mayhem, retaliatory moves, and a general climate of uncertainty.
At this stage, tariffs aren’t expected to significantly dampen Australia’s economy.
But the longer-term effects on supply chains and inflation aren’t fully understood.
Important!
The RBA has revised up its estimate for underlying inflation, which it believes will remain above the 2-3% target range until the second half of 2026.
Above: The RBA’s upward revision of inflation forecasts reflects the stronger-then-expected September quarter outcome.
It acknowledges that a range of unpredictable domestic and international factors could see disinflation progress stall, or a sharper deterioration than expected.
Plus, cost of living pressures remain high.
But what do leading economists say about the odds of inflation rising again or declining further in 2026?
Is Australia Finally Turning the Corner On Inflation?
The June 2025 CPI print revealed that trimmed mean inflation – the Reserve Bank’s preferred measure – slowed to 2.7%, the lowest it’s been since December 2021.
The June 2025 CPI print revealed that trimmed mean inflation – the Reserve Bank’s preferred measure – increased to 3.0%.
The biggest contributor to the inflation spike? Energy costs.
Electricity prices rose since last quarter (up 9.0%) and saw annual price growth of 23.6%.
The massive increase was the result of:
- Electricity becoming more expensive, following annual price reviews that came into effect from July 2025.
- Government rebates finishing, with consumers in QLD, WA and TAS in particular now having to fork out more.
While Aussies are paying less for the basics, they’re still paying too much.
Spending on non-discretionary items is still outpacing our ability to splurge.
Rent increases have eased from the extremes seen in recent years, but low vacancy rates mean rental prices keep climbing.
(Related: How Is The Australian Economy Doing?)
According to Louis Christopher, managing director of SQM Research, it’s still a landlord’s market:
- The national vacancy rate was 1.2% in September, an unchanged from August. But Brisbane, Perth, Adelaide, Darwin and Hobart all have vacancy rates below 1%, indicating ongoing demand-driven pressure.
- National asking rents for houses and units combined have risen by 4.8% over the 12 months to October 2025 – with the average weekly rent at $655.17. To rent a house in Sydney, you’ll pay $1,098 per week on average.
Above: Inflation in services is still high, but eased to 3.3% (compared to 4.3% in December 2024) – thanks to lower rents and insurance.
Did you Know?
September quarter CPI figures showed easing of annual rental price inflation, which rose 3.8% compared to 4.5% in the June quarter 2025.
Doing your weekly grocery shop is still painful on the hip pocket.
Fruit and veg price growth slowed, with a 2.2% annual change. However, Aussies paid more for eating out and getting takeaway, which was up 3.3%.
Michelle Marquardt, ABS head of prices statistics said:
Significant price increases in the 12 months to September 2025 were:
- Property rates and charges (6.3%).
- Alcohol and tobacco (5.9%).
- Non-alcoholic beverages (5.4%)
- Education fees (5.5%).
- Holiday accommodation and travel (5.2%)
- Vet and pet services (5.0%).
- Medical and health services (4.2%).
With electricity, housing, food and services inflation still problematic, September’s CPI result primed the market to expect a return to hawkish sentiment by the RBA.
Important!
Many pundits expected the RBA to hold rates in November, with market pricing putting the chances of a cut at less than 40%.
Following its meeting on 4 November, at which the Board left rates unchanged at 3.60%, Governor Michele Bullock didn’t talk up the chances of a fourth rate cut in December.
Bullock characterised the September quarter inflation surprise as a “blip” and suggested that we’re still headed in the right direction.
Important!
Analysis from Pinpoint MacroAnalytics finds underlying inflation rates tend to lift, although modestly, during the first year of easing cycles.
Chief Economist at IFM Investors, Alex Joiner, said rate cuts seem off the table for the foreseeable future given a consumer spending recovery — unless unemployment rises considerably.
The ABS’ Monthly Household Spending Indicator for September 2025 (released 3/11/25) shows spending grew by 0.2% month-on-month and by 5.1% annually.
Above: Household spending data across 2025 shows consumer spending could be returning to strength.
Is The Australian Economy Doing Worse Than The US?
Australia’s inflation and rate-cutting cycle was lagging behind those of other major economies in 2024, particularly the US.
But with Trump’s chaotic return to power, the US Federal Reserve switched to a ‘wait and see’ approach.
Stock markets fell sharply after President Donald Trump’s ‘Liberation Day’ announcement in April, in which he applied a universal 10% tariff on all imported goods and higher rates on countries such as China.
Uncertainty over the inflationary effects from the tariffs had the Fed on hold until September, when it delivered a 0.25% cut to bring US interest rates to 4%-4.25%.
A weakening US labour market was the key trigger, according to Wells Fargo senior economist Sarah House.
With Donald Trump breathing down their necks, a rising CPI, and bleak jobs data, the Fed cut a further 25 basis points in October 2025. Its rate now sits at 3.75%-4%.
Chair Jerome Powell said “there is no risk-free path for policy as we navigate this tension between our employment and inflation goals.”
Did You Know?
By comparison, the RBA initiated cutting in February 2025, and has delivered three 0.25% cuts to reduce Australia’s policy rate from 4.35% to 3.60% currently.
Its most recent outlook, the November Statement on Monetary Policy, the RBA notes that economic activity has been more resilient than expected in light of US tariffs
Persistent underlying inflation is a concern, but it’s expected to ease by mid-2026.
Headline inflation is expected to remain above 3% for most of 2026.
Above: Tariff-related impacts on the US CPI have started and inflation is expected to pick up there over coming months.
Important!
The US annual inflation rate is now 3.0% after seeing price growth for six consecutive months, including a 0.4% increase in August and a 0.3% increase in September.
The US Federal Reserve’s projections (released September 2025) have median PCE inflation at 2.6% in 2026, up from its June prediction of 2.4%.
It remains to be seen whether the US can avoid stagflation risks with President Donald Trump inciting high levels of volatility as he enacts his policies, tariff threats and various schemes.
What Is The Australian Government's Forecast?
In its 2025-26 Budget, Treasury forecast that inflation would be 3% by the June quarter 2026.
The RBA’s forecasts we’ll end 2025 with headline CPI inflation of 3.3% and underlying inflation of 3.2%.
Further out, the RBA’s outlook (from November) sees:
- Headline inflation lifting to 3.7% by June ’26 (compared to 3.1% forecast in August).
- Underlying (trimmed mean) inflation remaining steady at 3.2% in June (previous forecast 2.6%).
Important!
While it revised up its trimmed mean inflation forecast, the RBA expects the rise to be temporary, with core inflation declining to 2.7% by year-end 2026, and 2.6% in 2027.
Above: The forecast is based on the cash rate implied by market pricing, which assumes one more 0.25% cut in 2026.
Key things to watch, as identified by the RBA, include:
- Demand is stronger or weaker than expected. More cautious consumer spending would weigh on growth, while demand that outstrips supply could inflame inflation.
- Jobless numbers could increase too sharply or the labour market may tighten further, leading to capacity pressures that lift wages, increase business costs and lead to higher prices.
- Global growth could falter, as trade barriers could change again or financial markets with stretched valuations could tumble. But fiscal policy (e.g. China stimulus) could add to demand.
In its decision to leave rates unchanged on November 4, the board said a range of unpredictable factors presented both upside and downside risks:
A floundering economy with deeper job losses would make more extensive interest rate easing a necessity.
For now, many economists and major banks believe the rate-cutting cycle has run its course.
The next available inflation data from the ABS will be on 26 November 2025 — with the release of a new Monthly CPI publication.
Important!
NAB is still predicting one 0.25% cut in Q2 2026 for a terminal cash rate of 3.35%.
The Monthly CPI Indicator will stop, and the Monthly CPI will become the primary gauge of headline inflation.
Did You Know?
Eventually, quarterly CPI prints will also disappear but the ABS will publish them for at least the next 18 months as it collects the additional data needed to effectively report on patterns in the new monthly data series.
Above: An unwinding of cost-of-living subsidies will see a pick-up in headline inflation, before it falls again (dashed line shows previous forecast from February).
Predictions for the consumer price index headline rate in 2025 from the banks include:
| Bank | 2026 Q1 | 2026 Q2 |
|---|---|---|
| Westpac | 3.6% annual change 3.0% trimmed mean | 3.6% annual change 2.9% trimmed mean |
| NAB | 2.9% annual change 2.6% trimmed mean | 2.8% annual change 2.6% trimmed mean |
| ING | 2.8% annual change | 2.7% annual change |
What Factors Cause Inflation To Persist?
You can look at the Australian economy in one of two ways:
- Close-up. Consider interest rate rises, inflation data, food prices, unemployment rate, etc.
- Big picture. Study geopolitical issues, long-term trends and historical patterns.
Both are important. But in times of stress, humans overestimate the impact of the former and overlook the indirect (yet powerful) impacts of the latter.
The following micro and macro issues could have an impact in 2026:
1. Geopolitical Turmoil.
Further slowing of growth in the Chinese economy and ongoing conflicts in Russia/Ukraine and the Middle East are of concern.
The Israel-Hamas war rages on and it's unclear whether another ceasefire will be brought to bear.
Tensions with Lebanon, Iran and Houthi rebels that have been attacking ships in the Red Sea could all escalate once more.
The lingering threat continues to disrupt shipping to the detriment of supply chains.
In addition to supply disruptions, oil-producing countries - such as OPEC members and Russia - can have an outsized influence on the economies of rivals by manipulating the price of crude oil exports through reduced production.
Important!
More expensive oil contributes to the already strained cost of living in major economies like the US.
Chief economist at investment firm TCorp, Brian Redican said in June:
2. Rising Employment And Wages.
With inflation getting under control, employment levels will come into greater focus for the RBA.
RBA Governor Michele Bullock said the rise was in line with its forecast and that unemployment was still low relative to history.
Employment has been resilient.
The Fair Work Commission announced a 3.50% increase to minimum and award wages that took effect from 1 July - in an effort to reverse the decline in real wages due to inflation.
The Wage Price Index rose by 3.4% annually based on data from the June 2025 quarter.
Expert Tip.
Combined with rising real wages, it gives people more money to spend, increasing demand for goods and services and the impetus for corporations to lift prices.
3. Government Spending.
Fiscal policies impact how consumers and businesses make financial decisions.
This is why major government infrastructure projects, investments, subsidies and stimulus come under close scrutiny.
The Albanese Government’s budget for 2025-26 included more measures aimed at reducing inflation.
Among them are new tax cuts for workers earning between $18,201 and $45,000; increasing Medicare levy thresholds; more energy bill rebates; and cheaper medicines.
Temporary inflation-busters from the last budget will soon unwind.
An end to temporary power bill subsidies from the last budget was a major reason inflation ticked up again recently.
4. High Migration Levels.
Albanese’s government faced heat after Australia’s migration boom dwarfed treasury forecasts, with a net gain of over 500,000 people in 2022-23, according to ABS stats.
In 2023-24, net overseas migration was 446,000.
Australia’s rental market is still tight, resulting in rental price inflation rising 3.8% annually, according to the latest CPI numbers.
Above: Some of the most significant price rises occurred in the rental market.
What Is The History Of Inflation Rates In Australia?
Australia saw several spikes in the inflation rate in the 70s, 80s and 90s.
The RBA adopted the 2-3% inflation target in the early 1990s, with cash rate changes as the primary tool to stimulate or dampen economic activity and keep inflation stable.
Pent-up demand from that period was cited as a major cause of skyrocketing inflation as pandemic restrictions eased.
Australia’s inflation rate hit a 22-year peak in December 2022, reaching 7.8%.
Above: Consumer price index averages can obscure price movements in different parts of the economy. Services and rent inflation is still high, while goods (including food) inflation is falling.
How Does Australia’s CPI Compare Globally?
Australia’s inflation rate had been one of the worst among advanced economies in 2023-24.
And there was evidence that inflation was easing more quickly elsewhere.
Did You Know?
US annual CPI fell in March 2025 by 0.1% but has risen every month since — bringing annual inflation to 3.0%.
In the UK, inflation fell back to 2% for the first time in nearly three years in May 2024.
But it started rising again in late 2024, and reached 3.6% in June.
Its CPI figure has remained steady at 3.8% between July and September.
In a pre-budget speech delivered in November, UK Treasury chief Rachel Reeves said quashing inflation was a focus:
Above: The Economist coined a measure of “inflation entrenchment", a statistic used to demonstrate the stickiness of inflation. Australia was leading the pack in early 2024, likely due to some of the most generous pandemic stimulus measures.
In its economic outlook published in September, the OECD said that global growth was softening due to trade barriers, weak confidence and more uncertainty.
Inflation across G20 countries is now projected to decline from 3.4% in 2025 to 2.9% in 2026.
Above: Actual duties collected don’t align with the effective tariff rates, portending an increase in tariff collection.
The OECD said it was likely more tariff costs would start being passed on to consumers:
Frequently Asked Questions About Australian Inflation Rate.
If you find macro and microeconomic concepts difficult to wrap your head around, you're not alone. Get up to speed with my definitions below.
Headline Consumer Price Index vs Underlying CPI: What's The Difference?
Headline and underlying CPI are two different ways to interpret the price change data collected by the ABS.
- Headline inflation describes the overall quarterly and year-over-year change in goods and services prices, based on the entire basket of items the ABS uses to calculate price changes. This can be distorted by Black Swan events (e.g., when flooding hurt veggie producers, causing a spike in the price of the humble lettuce).
- Underlying inflation is based on analytical measures of the CPI, intended to omit or smooth over quarterly price volatility. Underlying inflation calculations provided by the ABS include the Trimmed mean and Weighted median.
Another way CPI is analysed is the ‘Seasonally adjusted’ figure that accounts for regular seasonal price movements, such as an increase in the price of education in March each year.
The measure spreads out the impact of ‘seasonal’ pricing over the year.
Inflation is currently slightly higher based on the Trimmed mean, at 2.7%.
Above: Australian Consumer Price Index vs Trimmed Mean.
How Is The Consumer Price Index (CPI) Calculated?
Staff from the ABS investigate current prices on a fixed ‘basket’ of things that an Australian household would typically spend their money on.
It includes groceries, housing, transport, healthcare, entertainment, and utilities (around 1 million prices are collected every quarter).
They calculate the price change from the previous quarter in aggregate to determine an overall inflation rate.
- The ABS also publishes price changes across various groupings of goods and services — as some areas contribute more significantly to headline inflation.
- For example, in the 12 months to the September 2025 quarter, insurance prices rose 2.6%.
What Is Inflation?
Inflation is a consistent, economically significant price rise across the economy.
Practical Example.
If the average price of insurance and financial services rose by $1,000 across the country, that would be considered inflation. If the price of these services rose in a single city, it would not be considered inflation.
Most often, inflation is caused by an imbalance in the supply and demand of money.
Why Is Inflation Dangerous?
Inflation can become a self-sustaining cycle. History is full of examples where out-of-control inflation brought relatively strong economies to their knees.
- Higher prices encourage workers to demand higher pay.
- Higher pay translates into higher overheads for businesses.
- Businesses charge higher prices to maintain profitability.
Higher prices make goods and services less affordable to everyday people, who demand higher wages again.
What Caused The Latest Spike In Australia's Inflation?
During lockdowns, the Australian government rolled out one of the most generous stimulus packages in the world.
Can Inflation Lead To A Recession?
Yes.
Rises in inflation, combined with interest rate rises, can force people to spend less while encouraging businesses to lay off employees. Unemployed people are less likely to buy goods and services, accelerating the downturn.
Did You Know?
The definition of 'recession' is two consecutive quarters of negative GDP growth.
Final Words On Rising Inflation Rate In Australia.
While there’s always a risk that prices will continue to surge, most experts agree Australia’s core inflation rate will stabilise within the target range in 2026-27.
Higher-than-expected private demand and the end of government subsidies led to a larger CPI blip than forecast — but the cost of many essentials seems to be easing.
However, nobody knows for sure whether monetary policy — with the cash rate still considered somewhat restrictive 3.60% — will slow down spending enough and how the chips will fall in relation to other macroeconomic factors like global supply, GDP growth and unemployment.
Jody
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