Australia’s monthly inflation measure slowed more than expected in November, reducing expectations the Reserve Bank of Australia (RBA) could resume tightening early in 2026.
The Australian Bureau of Statistics (ABS) said the consumer price index (CPI) rose 3.4% year-on-year in November, down from 3.8% in October. On a month-on-month basis, inflation was flat.
Economists had expected headline CPI to ease to 3.6% for the 12 months through November.
On the trimmed mean basis — the RBA’s preferred underlying inflation gauge — inflation slowed to 3.2% from 3.3%.
Australian equities added to gains following the data, with the ASX up 0.5% to 8,722.1, led by the technology sector, as traders pared back the probability of an imminent rate hike.
Rethink required?
The November result is the second complete monthly CPI reading since the ABS shifted away from its earlier partial monthly indicator. October’s hotter-than-expected print had prompted markets to reassess the outlook for 2026, with some traders leaning toward the possibility of rate increases rather than cuts.
That rethink was reinforced late in 2025 when RBA governor Michele Bullock surprised markets by suggesting borrowing costs could move higher in 2026 if inflation continued to climb, after the central bank held the cash rate steady at 3.6%.
Rates market reaction
Ahead of Wednesday’s CPI release, bond traders were pricing in a 37% chance of a rate rise at the RBA’s February meeting, with markets fully pricing a move higher by May.
The softer November inflation outcome has tempered those expectations, according to VanEck.
“After a steady climb over the second half of last year, [inflation] changed course in November,” VanEck deputy of investments & capital markets Jamie Hannah said.
"With headline inflation dropping to 3.4%, and trimmed mean (the RBA’s preferred measure of inflation) coming in at 3.2%. 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. 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.
“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. 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.
“Notwithstanding the persistence of elevated inflation, Australian households appear to be stronger than ever. Wages have been rising at a steady pace, with the Wage Price Index rising 3.4% in the year to September 2025, unemployment rate is still at historical lows (4.3% unemployment rate as at November 2025), and the latest household spending data showed a year-on-year increase of 5.6% as at October 2025. On a global level, Australia also measures up well when it comes to debt – one of the US’ biggest weaknesses. With gross debt at around 35% of GDP and net debt on the order of 20% of GDP, Australia is modestly leveraged,” said Hannah.
What’s next
The next key domestic data points are the labour market report on January 22 and the quarterly inflation figures on January 28, ahead of the RBA’s early February policy meeting.