Key Takeaways
- Annual inflation has slowed to 3.4% in November, down from 3.8% in October
- Trimmed mean inflation has dropped from 3.3% in October to 3.2% in November
- Housing costs, including electricity and rent, remain a major contributor to inflation, rising 5.2% annually
- The Reserve Bank of Australia (RBA) is expected to keep interest rates steady at 3.6% in February
- Economists predict several rate hikes in 2026 due to persistent cost pressures in key sectors
Introduction to Inflation Trends
The latest inflation figures from the Australian Bureau of Statistics have shown a slowdown in annual inflation, with a rate of 3.4% in November, down from 3.8% in October. This decrease in inflation has been attributed to a reduction in domestic travel and a easing of electricity bill price growth. The trimmed mean inflation, which is a measure of inflation that strips out the impact of the biggest price movements, also dropped from 3.3% in October to 3.2% in November. This is broadly in line with the RBA’s latest forecasts, and has led to speculation about the bank’s next interest rate decision.
Impact on the Reserve Bank’s Decision
The inflation figures present a mixed bag for the RBA, which meets in February to make its next interest rate decision. While overall inflation is trending lower, the pace of decline remains modest, reflecting persistent cost pressures in key sectors. The biggest contributor to annual inflation in November was housing, which rose 5.2% due to increases in electricity costs, rents, and new dwelling costs. This has led economists to predict that the RBA will keep interest rates steady at 3.6% in February, despite expectations of several rate hikes in 2026. RSM Australia economist Devika Shivadekar noted that "inflation is easing, which supports holding rates steady, but housing and energy costs remain stubbornly high, signalling underlying price pressures."
Economic Factors Influencing Inflation
The next key data point for the RBA ahead of its February meeting will be the labour force report, which will indicate how much capacity there is in the economy and the amount of pressure on wages. This is a key input for businesses making pricing decisions, and will likely play a significant role in the RBA’s interest rate decision. The Australian sharemarket spiked when the latest inflation figures were released, trading 0.4% higher at midday. This suggests that investors are optimistic about the economy, despite the ongoing challenges posed by high housing and energy costs.
Interest Rate Expectations
Economists have been expecting several rate hikes in 2026, after RBA governor Michele Bullock signalled that interest rates would not be coming down in the first half of the year. This is due to persistent cost pressures in key sectors, including housing and energy. The RBA’s decision to hold interest rates steady at 3.6% in December was seen as a sign that the bank is taking a cautious approach to monetary policy, and is waiting for further data before making any changes to interest rates. The February meeting will be closely watched, as it will provide further insight into the RBA’s plans for interest rates in 2026.
Conclusion and Future Outlook
In conclusion, the latest inflation figures have shown a slowdown in annual inflation, but the pace of decline remains modest. The RBA is expected to keep interest rates steady at 3.6% in February, despite expectations of several rate hikes in 2026. The labour force report will be a key data point for the RBA ahead of its February meeting, and will likely play a significant role in the bank’s interest rate decision. As the economy continues to navigate the challenges posed by high housing and energy costs, the RBA will need to carefully consider its monetary policy decisions in order to support economic growth and stability. The Australian sharemarket’s positive reaction to the inflation figures suggests that investors are optimistic about the economy, but the RBA will need to remain vigilant in order to ensure that inflation remains under control.