WEEKLY E-MAIL

2 February 2026

DECEMBER INFLATION RISE AND WHAT TO EXPECT FROM THE RBA

By Amelia Paullo

Over the past week, several important pieces of economic data have been released that provide insight into Australia’s inflation outlook and what we may expect from the Reserve Bank of Australia (RBA) at its upcoming meeting on 3 February.

Australia’s annual inflation rate rose to 3.8% in December, up from 3.4% in November, with the result higher than economists had expected. This reflects a broader lift in price pressures across the economy and continues to show that inflation is proving more persistent than the RBA would like.

Source: ABS

A significant driver of this increase was the continued rise in housing related costs, particularly energy prices. Electricity prices surged 21.5% over the year as state energy subsidies rolled off in Queensland and Western Australia. This contributed to inflation running hottest in Brisbane (5.2%) and Perth (4.4%), the highest among major cities. Rental costs rose 3.9% over the year, slightly lower than the previous month’s reading, supported by relatively stable vacancy rates. Supermarket pressures also remained, with food and non alcoholic beverages up 3.4% over the year.

The ABS also highlighted a nearly 10% jump in travel and accommodation prices, driven by strong December demand during the summer holiday period.

When looking at underlying inflation, the RBA’s preferred measure, the trimmed mean, rose 3.4% over the year, up from 3% in the September quarter. This indicates that even once volatile components are removed, inflation remains elevated and above the RBA’s target range of 2-3% p/a.

In addition to the inflation data, last week’s strong employment figures showed the unemployment rate falling to 4.1%, its lowest level in seven months. Together, these stronger than expected numbers have shifted market expectations around interest rates. NAB now estimates around a 75% probability of a rate rise next week, up from around 60% prior to the inflation data release.

Reflecting these shifting expectations, the Australian dollar briefly climbed back above US 70 cents, supported by both the robust labour market data and increased likelihood of near term policy tightening. While it has eased somewhat since, the currency remains stronger than in earlier months.

We will continue to monitor these changes closely, and continue to review our portfolio assets and the potential impact of rising rates.

Amelia Paullo
Senior Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 1243426

If you have any questions or comments, please email me at amelia@gfmwealth.com.au

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