Hopes for an RBA rate reduction fizzle as December CPI upsets to the upside

December 2025 CPI numbers for Australia verified that inflation remains obstinately higher than the target band of the Reserve Bank of Australia. Main Heading Although CPI increased by 0.6% quarter-on-quarter, as predicted, the annual rate accelerated to 3.8%, surpassing predictions of 3.5% and up from 3.4% in November. The data emphasize that although price pressures are dropping from their highs, they have not yet completely subsided.

Core inflation turned out to be sticky as well. At 3.3% year-on-year, the trimmed mean CPI was slightly above both the previous 3.2% and market forecasts of roughly 3.2%. The statistics point to ongoing domestic price momentum, especially in core sectors less influenced by volatile goods, given underlying inflation continuing at a level over the RBA's 2–3% target band.

Financial markets immediately saw the announcement as a blow for predictions for an early 2026 rate reduction. The higher-than-expected inflation reading supports the RBA's December hawkish hold recently and even rekindles debate about possible rate increases should disinflation stop. The result also comes as the ABS continues to treat monthly CPI as the primary gauge, with quarterly data providing a deeper cross-check that now clearly supports a “higher for longer” policy bias.