The Reserve Bank is set to lift interest rates next week after a disappointingly high inflation reading for the December quarter, fuelled by rising costs for housing construction, electricity and food.
The Reserve Bank is set to lift interest rates next week after a disappointingly high inflation reading for the December quarter, fuelled by rising costs for housing construction, electricity and food. The annual CPI figure came in at 3.8 per cent for the full 2025 year, up from 3.2 per cent for the year to September. While not unexpected, the rate is clearly above the central bank’s two to three per cent target band. What was unexpected was that the trimmed mean rate of inflation, which takes out all the volatile items and was closely watched by the Reserve Bank, rose to 3.3 per cent.
The Aussie dollar is buying around 70 US cents, having hit a new three-year high yesterday. It reflects both the potential for higher interest rates and a weaker US dollar. Against a basket of currencies, the greenback is trading around a four-year low.
Federal Nationals leader David Littleproud faces a challenge next week when parliament resumes, with party MP Colin Boyce, who had been rumoured to head to One Nation, saying he will move a spill motion on Monday.
Oil and gas giant Woodside reported record output in 2025 but has flagged a drop in production as the group searches for a new CEO.
Droneshield’s chief executive Oleg Vornik yesterday said he sold almost $50 million of stock last year to cover a tax bill and to secure his financial future. The sale, in part, led to a 30 per cent drop in the group’s share price in one day.
Fear-o-meter
After the Reserve Bank lifts interest rates next week, will there be more hikes later in the year? There is no clear answer to that question.
Some have called a rate hike next week an “insurance tightening” – just to make sure the economy, and inflation, doesn’t fire up too much.
Others believe it will be the first of at least two hikes, and probably three increases, as the central bank battles to contain inflation.
The December ABS reading wasn’t pretty for anyone with a mortgage. All four major banks now expect an increase in rates next week.
The challenge for the RBA is that inflation has momentum. For two quarters it has been accelerating. That makes it tougher to control.
There is likely to be a rate hike next week, and then in May (unless the March quarter CPI figures are surprisingly weak).
Fear & Greed Q+A today
On yesterday's jump in annual inflation, and what he thinks the RBA board should do when it meets next week:
“If I was walking into the board meeting next Monday, I would be suggesting forty basis points and thinking about two twenty-fives at the following two meetings. That is, get the cash rate to four and a half per cent by the time of the budget in May. That’s about as aggressive as you’d want to be, because that’s going to have a big short-term impact...
If you can get seventy-five to a hundred basis points of tightening into the economy now, we might get out of this with a mild recession. And the reality is, the jobs we’re going to lose in that downturn are jobs we’re going to lose anyway. The government should be focused on re-skilling people into the hundreds of thousands of vacancies already sitting in this economy.
What I think they’ll actually do is probably twenty-five, twenty-five, twenty-five. They’ve used every excuse in the book not to do what they needed to do. This is probably the last opportunity for the RBA board and senior management to prove themselves.”
We can't imagine too many homeowners are in the partying mood ahead of the RBA meeting next week - but if you are partial to a shindig, it turns out you might be in the wrong country altogether. This survey asked thousands of adults aged 18-64 around the world if they consider 'partying' to be a personal hobby. It proves several things: Aussies must be very dull indeed (we don't even rate a mention), the Greeks know how to party, and there truly is a study for everything.
