Bodyblow for homeowners as inflation SOARS – and Aussies are warned to brace for a TRIPLE whammy on interest rates

Mortgage holders face a fresh blow, with hotter‑than‑expected December inflation raising the risk the Reserve Bank will keep interest rates on hold even longer – a make‑or‑break moment for already stretched households. 

New ABS data released on Wednesday shows the Consumer Price Index (CPI) rose 3.8 per cent in the 12 months to December as price pressures remain stubborn across key household categories with housing the biggest contributer jumping 5.5 per cent over the year. 

The trimmed mean – the Reserve Bank’s preferred underlying measure because it strips out volatile price swings – rose to 3.3 per cent in the year to December, up slightly from 3.2 per cent in November.

Food and non‑alcoholic beverages rose 3.4 per cent and recreation and culture increased 4.4 per cent.

Goods inflation lifted to 3.4 per cent, pushed up heavily by electricity prices, which surged 21.5 per cent.

Services inflation rose to 4.1 per cent over the year up from 3.6 per cent in November with the strongest increases in domestic holiday travel and accommodation (+9.6 per cent) and rents (+3.9 per cent).

Australians also paid more for meals out and takeaway, up 3.5 per cent, as cafés and restaurants passed on higher wage and ingredient costs.

Food prices continued to climb across the board with meat and seafood up 4.4 per cent, with beef and lamb both jumping more than 10 per cent amid strong international demand.

Fruit and vegetables increased 4 per cent, up from 2.7 per cent in November. 

The Reserve Bank of Australia has been battling to keep Australia’s inflation rate between 2 and 3 per cent. In November, inflation was at 3.4 per cent.

The increase in official estimates of inflation led to the Reserve Bank’s decision to leave interest rates unchanged for its last three meetings in October, November and December 2025. 

It was the first time since 2024 the Reserve Bank has left interest rates unchanged at three consecutive meetings.

Compare the Market economic director David Koch said even if the December quarter inflation figure is slightly above the 3 per cent target range the Reserve Bank sets for inflation, then it’s reasonable to expect interest rates to be on hold.

‘If the momentum continues to increase and that inflation figure is well above the 3 per cent level, then the Reserve Bank will be pondering increasing interest rates,’ he said.

Both the September quarterly CPI data and October monthly inflation data came in hotter than expected, which could be influencing lenders’ decision to lift rates.

This, according to Kochie, is why the Reserve Bank will be laser‑focused on the December quarter inflation data.

But he warned that any increase in interest rates would have a direct and immediate impact on household budgets, particularly for borrowers with larger mortgages.

‘A single 0.25 per cent rate rise could push monthly repayments up by about $94 for someone with a $600,000 mortgage,’ he said.

‘That’s an extra $1,128 a year – money many households simply don’t have to spare when they’re also being hit with higher grocery costs, insurance premiums and energy bills.’

Meanwhile the Australian dollar rose to 70 cents on Wednesday as currency traders focused on Australia’s low jobless rate of 4.1 per cent in December, which potentially adds to the case for another RBA rate rise.

Besa Deda, chief economist for the accounting and advisory firm William Buck, said the Aussie was gaining in part due to stronger than expected domestic employment data, which had raised the risk that the Reserve Bank might hike rates in February.

She said the Aussie dollar might climb further off the back of the latest CPI figures.

‘I think there is possibility in the near term, particularly depending on what the data shows tomorrow, for the Aussie dollar to break above 70 US cents, probably even maybe 71 US cents,’ she said.