Australia’s inflation was recorded at 3.6 percent in the fourth quarter of 2025, the highest level in six quarters, and supports the warnings from policymakers that interest rate cuts this year are likely to be limited.
The fourth-quarter indicator was not surprising to economists who were polled by Reuters, but improved upon the 3.2 percent in the third quarter. Quarterly inflation increased by 0.6 percent, again in line with Reuters expectations and a significant improvement on the 1.3 percent of the preceding quarter.
In the case of December, inflation in Australia increased by 3.8 percent when compared to the previous year, which was a better result than economists had predicted of 3.55 percent.
The Australian Bureau of Statistics reported that housing is the greatest contributor to the growth in December, as prices increased by 5.5 percent. Food and non-alcoholic drinks prices were also adding to the price gains of the month, and so was recreation and culture.
According to Shier Lee Lim, Lead FX & Macro Strategist for Asia Pacific at foreign exchange firm Convera, the greater inflation figure will trigger the central bank to continue a “cautious stance.”
Although Lim indicated that an increase in the rate may not be possible at the next policy meeting of the bank in February, additional tightening is not excluded in case inflation is sticky and above target in the next several quarters.
However, the Reserve Bank of Australia intends to maintain a range of 2 to 3 percent of inflation. The inflation figure is in line with recent remarks by the Reserve Bank of Australia Deputy Governor Andrew Hauser, who opined that the current level of inflation is “too high.”
Hauser said in an interview with ABC on January 8, “Inflation above 3%, let’s be clear, is too high. We’re charged to keep inflation between two to three per cent, and it’s currently above that.”
Hauser indicated that there was a possibility of more rate cuts in the near future, which was “probably very low.” His statements were a reiteration of comments made by RBA Governor Michele Bullock following the RBA rate announcement on December 9, when she said that there was no foreseeable future of a decrease in interest rates.
In the third quarter, the Australian economy expanded 2.1 percent, which is an upgrade, against a revised 2 percent in the second quarter, and the quickest growth in nearly two years.
Bullock stated in December that rate cuts were not required at that time, adding that a recovery in private-sector activity and growth would surpass public demand.
