RBA Governor Michele Bullock will announce the next monetary policy decision in February. Picture: NewsWire / Christian Gilles
A slowdown in inflation has handed mortgage holders a temporary lifeline and raised fresh hope that another punishing interest rate hike may be pushed further down the road.
New figures show Australia’s headline annual inflation rate cooled to 3.4 per cent, down from 3.8 per cent, in the 12 months to November.
It was a sharper-than-expected fall that will be closely watched inside the Reserve Bank’s Martin Place headquarters.
Even more crucially for homeowners, the trimmed mean inflation rate, the RBA’s preferred gauge because it strips out volatile items like fuel, slipped to 3.2 per cent from 3.3 per cent over the year.
For millions of already stretched borrowers, the numbers offer hope that rates may not be increased as early as some have predicted.
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Two of the big four banks had forecast rate hikes in February.
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Until now, fears had been growing that stubborn inflation would force the RBA’s hand early in the new year, delivering another rate hike.
Among the groups who had expected rate hikes was Commonwealth Bank, which had forecast in November that the Reserve Bank could raise the cash rate as early as February.
NAB had forecast a rate hike in February and an additional hike in May. Other banks had been quietly increased fixed rates – normally a bet that the cash rate will rise.
The latest data won’t rule out any hikes in 2026 but does strengthen the case for patience and gives the central bank breathing room to keep rates on hold while it waits for inflation to fall into its target band of 2-3 per cent.
VanEck deputy of investments Jamie Hannah said the fall in inflation would make the case for an imminent rate hike weaker, but the rates outlook remained uncertain.
Canstar’s Sally Tindall said rate hikes weren’t off the cards just yet, but they may be delayed.
“Had inflation continued to move north, this could have sealed the deal for a rate hike next month, which would be the first increase in more than two years,” Mr Hannah said.
“As it stands, the positive developments from today’s inflation print could be enough to keep the rate hike wolves at bay for now, but the outlook over 2026 is far from certain.”
Mr Hannah said there was still a chance of rate hikes later in the year.
“After three rate cuts last year, the RBA is, at best, keeping any further movement on hold. It has, however, hinted at tightening in 2026,” he said.
“Inflation remains elevated, and between government energy rebates rolling off, higher tariffs flowing through to consumer prices, and geopolitical conflicts impacting major supply chains – not to mention the stickiness of services and housing inflation – keeping it on a tight leash this year will not be straightforward.”
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Geopolitical events, such as US President’s Donald Trump action in Venezuela could influence the direction of monetary policy in Australia. Picture: Getty Images
Canstar insights manager Sally Tindall said the RBA would be eagerly awaiting the results from a suite of other soon to be released datasets.
“This result takes some heat off the RBA and the case for a February cash rate hike. That said, much will depend on the next few datasets due out before the RBA’s next meeting . In particular, the RBA will be looking at the more robust quarterly trimmed mean inflation figure due out on the 28th of January.
“It will also be keeping a keen eye on the jobs market, with the next round of Labour Force figures due out from the ABS on the 22nd.
Ms Tindall said borrowers should still prepare for a hike.
“Check what your monthly repayments would rise to on the back of a hike and make sure you can afford this figure,” she said.
“Many borrowers are already paying extra into their mortgage, having not adjusted their repayments following the three cash rate cuts in 2025, and will already be in a good position to take on a hike, as unattractive as that prospect might be.
“Secondly. Check your rate and size it up against the competition. The average owner-occupier is on a variable rate of 5.51 per cent. You want to be well below this mark. In fact, if you have a good track record of paying down your debt there’s no reason you shouldn’t be on a rate below 5.25 per cent as an owner-occupier.”
Compare the Market’s Chris Ford urged homeowners to be cautious.
“At this stage we don’t know if the easing was a blip, or a more sustainable trend,” he said.
Uncertainty over rate hikes has tempered property demand in recent weeks.
“Remember that the RBA inflation target is between 2-3 per cent, and the November figure is poking above that at 3.4 per cent.
“Unfortunately, homeowners are going to have to cope with more uncertainty this year. The December quarter CPI data, due for release later this month could be the real bellwether for where rates are headed.”
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PropTrack economist Anne Flahety noted that inflation remained “high” and above the target range of the RBA, even if it was falling.
“Housing was a major contributor to inflation over the month, at 5.2 per cent, with other major drivers including food and non-alcoholic beverages, and transport,” she said.
“While the slowdown is good news, inflation remains too high. December’s inflation data is due for release at the end of January, before the Reserve Bank will next meet to decide interest rates. Should high inflation persist, this will increase the chance of a rate rise come February’s meeting.”
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