RBA Rate Hikes Back on the Radar as CPI Jumps and a $5 Billion ‘Christmas Gift’ Looms
RBA Rate Hikes Back on the Radar as CPI Jumps and a $5 Billion ‘Christmas Gift’ Looms
By KudosKuber – 26 November 2025
Australia’s inflation story has flipped again – and not in the way the Reserve Bank of Australia (RBA) hoped.
Fresh data from the ABS (Australian Bureau of Statistics) show the CPI has jumped from 3.6% in September to 3.8% in the year to October. That surprise lift in the australian inflation rate has markets rethinking the outlook for reserve bank interest rates, with 2026 now looking more like a year of possible hikes than gentle cuts.
At the same time, Treasurer Jim Chalmers is hinting at a potential $5 billion “early Christmas gift” for households, likely in the form of further power‑bill relief. For anyone searching “inflation rate australia”, it’s a double‑edged story: higher prices, higher rate risks – and maybe some short‑term relief.
1. Inflation reignites: CPI jumps from 3.6% to 3.8%
The latest monthly CPI indicator has delivered a clear message: inflation is picking up again, not cooling.
Key points from the ABS October release:
- Headline CPI: up from 3.6% to 3.8% year‑on‑year
- Trimmed mean (underlying inflation): around 3.3%, edging higher
- Goods inflation: about 3.8%
- Services inflation: close to 3.9%
This means the inflation rate Australia is running above the RBA’s 2–3% target band, and moving in the wrong direction heading into 2026.
Major contributors include:
- Housing: roughly 5.9% higher over the year – the biggest single driver of CPI
- Food and non‑alcoholic drinks: up around 3.2%
- Recreation and culture: also about 3.2%
- Electricity: a huge 30%+ annual rise as previous rebates roll off
The ABS shift to a fully‑fledged monthly CPI series means these trends show up faster than in the old quarterly system – and the October print is anything but comforting.
2. What the new CPI data means for Reserve Bank interest rates
The RBA left the cash rate unchanged at 3.60% at its 4 November 2025 meeting, but acknowledged that inflation had “picked up” again. The October CPI release has now sharpened that concern.
Markets: from cuts to hikes
Before the latest data:
- Traders still saw a reasonable chance of one last rate cut in May 2026.
After the 3.8% CPI print:
- Market pricing for a May 2026 cut has collapsed to a very low probability.
- Odds of a rate hike by late 2026 have risen meaningfully, with talk of hikes “back on the table”.
In other words, the market narrative has flipped from “when will cuts start?” to “could the next move in reserve bank interest rates actually be up?”
Economists: warning shots for 2026
Economists are sounding a similar note:
- Some now argue the RBA “could be forced to hike” if inflation stays sticky into early 2026.
- A few are even flagging the risk of a move as early as mid‑2026 if growth and demand don’t slow.
Just months ago, consensus was that 2026 would bring gradual easing. After this red‑hot CPI reading, many now think the next decisive move in reserve bank interest rates is more likely a hike than a cut.
3. Why the australian inflation rate is rising again
The October data suggest this is not just a one‑month blip. Several structural and policy forces are at work.
3.1 Electricity and energy: rebates rolling off
Electricity prices have soared – more than 30% year‑on‑year in some measures – and are a key reason inflation has re‑accelerated.
Why?
- Earlier state and federal power‑bill rebates and subsidies have expired or been scaled back.
- As those temporary discounts disappear, electricity prices are “snapping back” to market levels, lifting measured CPI sharply.
Ironically, the policies that initially helped push inflation down are now driving it higher as they unwind.
3.2 Housing and rents: heavy weight in CPI
Housing is another major driver of the australian inflation rate:
- Housing costs: up roughly 5.9% over the year
- Rents: rising as vacancy rates stay low
- Construction costs: still elevated, with capacity constraints and solid demand
Because housing has such a large weight in the CPI basket, even moderate increases in rents and construction can keep core inflation stubbornly high.
3.3 Services inflation: sticky and worrying
Services prices – often linked to wages and domestic demand – remain uncomfortably strong:
- Services inflation: near 3.9%
- Medical and hospital services: around 5%+ higher over the year
- Domestic travel and accommodation: more than 7% in some reads
This kind of services‑driven inflation is exactly what makes central banks nervous: it’s less about one‑off shocks and more about persistent domestic pressures.
4. The $5 billion ‘early Christmas gift’: power‑bill rebates back in play
In the middle of this inflation spike, the government is trying to soften the blow.
So far, the Treasurer has:
- Delivered about $300 per household in electricity relief in the 2024 budget (roughly $3.5 billion in total)
- Added another $150 per household in the latest budget (about $1.8 billion more)
Together, that’s more than $5 billion in power‑bill relief – the basis for headlines about a “$5 billion early Christmas gift” for every household.
Crucially:
- These rebates are due to end in late 2025.
- Jim Chalmers has left the door open to extending them, with a final call expected around the MYEFO update in December.
Support vs. inflation: a delicate balance
Politically, extending relief is attractive. Economically, it’s complicated:
-
Pros:
- Cuts household power bills, gives families breathing room.
- Offsets some of the pain from rising inflation and higher mortgage repayments.
-
Cons:
- Changes electricity prices again, which can distort CPI.
- Risk of adding demand at a time the inflation rate australia is already running hot, potentially forcing the RBA to tighten more or hold rates higher for longer.
The challenge is clear: target cost‑of‑living support without knocking the RBA off its path back to the 2–3% inflation target.
5. What this means for you: mortgages, renters, savers
For KudosKuber readers trying to make sense of the numbers, here’s the real‑world impact.
5.1 Mortgage holders: don’t count on rate cuts
- Markets have largely abandoned the idea of early‑2026 rate cuts.
- There is now a real risk of rate hikes if inflation remains near 3.8% or pushes higher.
- Even if the cash rate stays at 3.60%, the October CPI print makes cheaper mortgages far less likely in the near term.
KudosKuber tip: if your budget assumes reserve bank interest rates will fall in 2026 to save you, it’s time to stress‑test for the opposite: flat or slightly higher rates.
5.2 Renters and would‑be buyers
- Rising housing inflation and rents feed directly into CPI, which encourages the RBA to keep policy tighter for longer.
- A still‑solid labour market and underlying demand are supporting dwelling prices, limiting relief for first‑home buyers.
Translation: the October reversal in the australian inflation rate isn’t just a headline – it makes housing affordability harder to fix.
5.3 Savers
Not everyone loses when rates stay higher:
- If the cash rate holds or rises, deposit and term‑deposit rates should remain well above the ultra‑low levels of a few years ago.
- But with inflation near 3.8%, real returns (after inflation) are still modest, so picking the right account or term is crucial.
6. Outlook: how long will the Australian inflation rate stay elevated?
The RBA’s latest forecasts already assumed:
- Underlying inflation staying above the 2–3% band until the second half of 2026, even before the hot October CPI.
Layer on top:
- October’s 3.8% annual CPI and 3.3% trimmed mean
- Broad‑based strength in housing and services
- The possibility of additional fiscal support through extended power‑bill rebates
…and you get an outlook where:
- Inflation is likely to hover above 3% for much of 2026.
- The RBA is likely to be very cautious about any talk of easing.
- The probability that the next major move in reserve bank interest rates is up, not down, has clearly risen.
KudosKuber takeaway: the era of “certain” rate cuts is over
The new ABS monthly CPI data have sent a clear signal:
- The australian inflation rate is not gliding neatly back to target.
- It’s being pushed higher by electricity, housing, and services, just as markets were hoping for relief.
- A $5 billion “Christmas” power‑bill package may cushion households, but it also adds another layer of complexity for the RBA.
For households, businesses and investors alike, the key message is simple:
Plan for a world where inflation stays higher for longer – and where rate cuts are no longer a sure thing. From here, the risk that inflation forces RBA rate hikes in 2026 is firmly back on the table.
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