Fresh economic data has delivered a sliver of relief for Australian borrowers, with a key measure of inflation showing a modest decline as the Reserve Bank prepares for its first meeting of 2026.
Inflation Moderates But Stays Above Target
The Australian Bureau of Statistics reported that annual core inflation, which excludes volatile price movements, eased to 3.2 per cent for the year to November. This was a slight dip from the 3.3 per cent recorded in October and came in just below analyst expectations of 3.3 per cent.
While the direction is positive, the figure remains stubbornly above the Reserve Bank of Australia's target band of 2 to 3 per cent. The headline inflation rate, influenced by one-off factors like government electricity rebates, showed a more pronounced fall from 3.8 per cent to 3.4 per cent.
RBA's February Decision Hangs in the Balance
The latest numbers will be a critical input for the RBA board when it meets in February. Markets had previously priced in a 36 per cent chance of a rate hike at that meeting, with major banks like NAB and Commonwealth Bank forecasting an increase.
According to analysis from Canstar, such a hike would add approximately $90 per month to a $600,000 mortgage with 25 years remaining. However, Wednesday's softer inflation print has slightly reduced the likelihood of immediate action.
"The result could be enough to keep the rate hike wolves at bay for now, but the outlook over 2026 is far from certain," said VanEck analyst Jamie Hannah.
Bullock's Tough Stance and the Year Ahead
The data follows stern warnings from RBA Governor Michele Bullock in December. She emphasised the board's readiness to act if inflation does not return sustainably to target.
"If it does look like inflation is not coming sustainably back to the band, and it’s going the other direction, then the board will have to take action... And it will," Governor Bullock stated after the December meeting.
Despite the lingering inflation challenge, some economists see only limited tightening ahead. Commonwealth Bank's Belinda Allen, in a recent economic outlook, noted, "We don’t expect a large hiking cycle, only fine tuning by the RBA, and see the cash rate sitting at 3.85 per cent at the end of 2026." She added that Australia concluded 2025 in a cyclical upswing.
The RBA will receive one more crucial batch of price data at the end of January before making its February monetary policy decision, leaving borrowers and economists alike watching every indicator closely.
