Activity on Elizabeth Street (at the intersection of Bourke St Mall), Melbourne on a cloudy day.
Charlie Rogers | Moment | Getty Images
Australia’s inflation came in at 3.6% in the fourth quarter of 2025, its highest level in six quarters, reinforcing warnings from policymakers that interest rate cuts this year are likely to be limited.
The fourth-quarter reading was in line with expectations from economists polled by Reuters and up from the 3.2% seen in the third quarter.
On a quarterly basis, inflation rose 0.6%, also matching the Reuters forecast and easing sharply from the 1.3% seen in the previous quarter.
For December, inflation in Australia rose 3.8% year on year, exceeding the 3.55% expected by economists.
The Australian Bureau of Statistics said housing was the largest contributor to the rise in December, with prices rising 5.5%.
Prices of food and non-alcoholic beverages, as well as recreation and culture, also contributed to the month’s price gains.
The higher inflation reading will prompt the central bank to maintain a “cautious stance,” according to Shier Lee Lim, Lead FX & Macro Strategist for Asia Pacific at foreign exchange firm Convera.
While Lim said a rate hike at the bank’s February policy meeting is unlikely, further tightening cannot be ruled out if inflation remains sticky and above target in the coming quarters.
The Reserve Bank of Australia aims to keep inflation within a 2% to 3% target range.
‘Too high’ for rate cuts
The inflation reading follows recent comments from Reserve Bank of Australia Deputy Governor Andrew Hauser, who said that inflation at current levels is “too high.”
“Inflation above 3%, let’s be clear, is too high. We’re charged to keep inflation between two to three per cent and it’s currently above that,” Hauser said in an interview with ABC on Jan. 8.
Hauser said the likelihood of further rate cuts in the near term was “probably very low.”
His remarks echoed comments from RBA Governor Michele Bullock after the RBA’s rate decision on Dec. 9, when she said that interest rate cuts were not on the horizon for the foreseeable future.
Australia’s economy grew 2.1% in the third quarter, expanding from a revised 2% in the second quarter and marking its fastest growth in about two years.
Bullock said in December that rate cuts were not needed at that time, citing a recovery in private-sector activity and growth surpassing public demand.