Key Takeaways
- Inflation cooled in November, with the consumer price index (CPI) rising 3.4% over the year, down from 3.8% a month earlier
- The trimmed mean, a measure of underlying inflation, edged down to 3.2% from 3.3% in October
- The largest contributor to annual inflation in November was housing, up 5.2%, followed by food and non-alcoholic beverages, up 3.3%, and transport, which rose 2.7%
- The Reserve Bank of Australia (RBA) is expected to weigh whether to keep interest rates steady or raise them in 2026, with major bank economists divided on their forecasts
- The ABS will release December and quarterly CPI data at the end of January, giving the central bank another inflation update before its next meeting
Introduction to Inflation Trends
Inflation has been a major concern for the Reserve Bank of Australia (RBA) in recent months, after it moved back above the mid-point of its 2-3% target band in the back half of 2025. However, the latest data release from the Australian Bureau of Statistics (ABS) shows that inflation cooled in November, with the consumer price index (CPI) rising 3.4% over the year, down from 3.8% a month earlier. This decrease in inflation has been welcomed by economists, with Westpac chief economist Luci Ellis describing it as a "very pleasant surprise" for the overall CPI.
Breakdown of Inflation Data
The largest contributor to annual inflation in November was housing, up 5.2%, followed by food and non-alcoholic beverages, up 3.3%, and transport, which rose 2.7%. Annual goods inflation was 3.3% in the 12 months to November, down from 3.8% in October, driven by an easing in electricity price rises. Electricity prices were up 37.1% in October, but rose 19.7% in November. Services inflation also eased, up 3.6% over the year to November, down from 3.9% in October, which had been affected by high demand for travel during the October school holidays.
Impact on Interest Rates
The RBA’s interest rate setting board meets next month, and the latest inflation data is expected to play a significant role in their decision. Major bank economists have been divided on their forecasts for the February meeting, with Commonwealth Bank and NAB expecting a 0.25 percentage point rate hike, while ANZ and Westpac are tipping the cash rate to remain steady at 3.6%. Dr. Ellis believes that the latest data solidifies the idea that rates will remain on hold, but notes that there is still a chance the RBA may hike rates. The RBA governor, Michele Bullock, has stated that the central bank would likely be weighing whether to keep rates steady or raise them in 2026.
Economists’ Views
Dr. Ellis also noted that the monthly trimmed mean is a noisy number at the moment, and there is a lot of uncertainty about how the ABS will manage some areas. The ABS will release December and quarterly CPI data at the end of January, giving the central bank another inflation update before its next meeting. According to a Reuters poll, economists had expected headline inflation to rise 0.3% in November, for an annual rise of 3.7%. The trimmed mean had been tipped to remain at 3.3%. The difference between the expected and actual inflation rates has significant implications for the RBA’s decision on interest rates.
Conclusion and Future Outlook
In conclusion, the latest inflation data release from the ABS shows that inflation cooled in November, with the CPI rising 3.4% over the year. The largest contributors to annual inflation were housing, food and non-alcoholic beverages, and transport. The RBA is expected to weigh whether to keep interest rates steady or raise them in 2026, with major bank economists divided on their forecasts. The ABS will release December and quarterly CPI data at the end of January, giving the central bank another inflation update before its next meeting. As the RBA continues to monitor inflation and make decisions on interest rates, it is essential to keep a close eye on the latest economic data and trends to understand the potential implications for the Australian economy.
