Today’s Australian CPI report marked the lowest inflation level since August 2025, with housing prices easing and electricity prices moderating sharply, after the expiry of government rebates. The Reserve Bank of Australia’s preferred core inflation indicator, the trimmed mean, decreased to 3.2% year-on-year, down from 3.3% in October.
Today’s monthly inflation report does not provide the full inflation picture, as the quarterly inflation report is more comprehensive. The drop in November inflation report is positive news but inflation remains stubbornly high and is still above the RBA’s target band of 2-3%.
RBA February Rate Cut?
The Reserve Bank of Australia (RBA) finds itself caught between a rock and a hard place. The central bank is reluctant to lower rates due to high inflation and maintained rates at 3.60% at the December meeting. If, however, today’s inflation report is not just a one-off and inflation continues to head lower, there will be further pressure on the central bank to consider a rate cut in February.
The labor market is showing widening cracks, as the economy lost 21.3 thousand jobs in November, surprising the markets which had forecast a gain of 20 thousand. The RBA has some breathing room, with the next meeting on February 3. The key event ahead of the meeting is the December employment numbers on January 22.
Another decline in employment would strongly support a rate cut in February, while a gain in employment would likely mean another hold in rates by the RBA. Currently, the markets have priced in a two-thirds probability that the RBA will stay on the sidelines in February, with a rate hike expected by June.
We can expect the central bank to remain cautious, with upcoming rate decisions largely based on the inflation and employment reports. Let’s not forget that a rate hike in February cannot be dismissed – at the December meeting, RBA Governor Bullock said that “it does look like additional cuts are not needed” and did not rule out a rate hike.
Australian Dollar Steady, Stock Market Ticks Higher
The AUD/USD currency pair is in positive territory this week but is unchanged on Tuesday, trading at $0.6738. The Australian dollar hit a high of $0.6766 earlier today, its highest price since October 2024.
The benchmark Australian index, the S&P/ASX 200, posted slight gains on Wednesday, rising 12 points (0.15%) and closing the day at 8.695.
We hope you enjoyed reading our analysis of the latest Australian CPI data. If you’d like to trade with one of the best Forex brokers in the world, check out our list.