Homeowners are bracing for another setback as the unexpected surge in December’s inflation figures increases the likelihood that the Reserve Bank may prolong its current interest rate pause. This presents a critical juncture for households already feeling financial strain.

According to new data from the Australian Bureau of Statistics released on Wednesday, the Consumer Price Index (CPI) climbed 3.8% over the year ending in December. Persistent price hikes across essential household categories are evident, with housing seeing the most significant increase at 5.5% annually.

The trimmed mean, favored by the Reserve Bank for its focus on core inflation by excluding erratic price changes, edged up to 3.3% in the year to December, a slight rise from the previous month’s 3.2%.

Prices for food and non-alcoholic drinks experienced a 3.4% increase, while the recreation and culture sector saw a 4.4% rise.

Inflation for goods climbed to 3.4%, significantly driven by a steep 21.5% rise in electricity costs.

Service-related inflation also saw a rise, reaching 4.1% over the year, up from November’s 3.6%. The most substantial hikes were noted in domestic holiday travel and accommodation, which soared by 9.6%, and rents, which increased by 3.9%.

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.

Reserve Bank Governor Michele Bullock (pictured) has been battling to keep Australia’s inflation rate between 2 and 3 per cent

Australian mortgage holders were warned last week they may not receive any rate relief over the next 12 months, as banks quietly increase interest rates

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.

David Koch (pictured) Kochie said the Reserve Bank will be laser‑focused on the December quarter inflation data ahead of its meeting next week to discuss interest rates

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.