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Rate hike odds rise as CPI ticks higher
Millions of property owners face a near-certain rate hike next week after inflation data came in hotter than expected, raising the likelihood of higher mortgage costs.
Today’s consumer price index (CPI) figures hit hard for the 1.3 million Australians in mortgage stress, as higher-than-expected inflation has put more pressure on the Reserve Bank of Australia (RBA) to lift interest rates next week.
New Australian Bureau of Statistics (ABS) data showed that the CPI for December rose to 3.8 per cent over the past 12 months, up from 3.4 per cent in November.
Housing was the main driver of annual inflation in December, rising 5.5 per cent largely due to a 21.5 per cent surge in electricity costs, followed by food and non-alcoholic beverages up 3.4 per cent, and recreation and culture, which increased 4.4 per cent.
Trimmed mean annual inflation has also accelerated to 3.3 per cent in the 12 months to December 2025, up from 3.2 per cent in the 12 months to November 2025, dampening hopes of an interest rate hold next week.
The quarterly results, which have been the RBA’s preferred measure, showed trimmed mean inflation for December exceeded forecasts, making a February rate hike increasingly likely.
Before the release of inflation data, the big four banks were divided on a rate hike next week, but the Australia and New Zealand Banking Group (ANZ) and Westpac have now joined their peers in predicting a 25-basis-point increase.
National Australia Bank (NAB) remained the only of the big four banks to forecast two rate hikes in 2026 in February and May.
Canstar.com.au’s data insights director, Sally Tindall, said that with inflation figures being higher than forecasted, the RBA wouldn’t have much of a choice at its next meeting.
“With inflation running hotter than expected, the RBA has little choice but to make a U-turn back to rate hikes.”
“We’re now four long years into the battle with inflation, and today’s results confirm we’re once again headed in the wrong direction.
“The RBA no longer has the luxury of continuing its ‘wait-and-see’ strategy if it's serious about getting the inflation job done.”
According to modelling, borrowers with a $600,000 mortgage and 25 years remaining could see their repayments jump by $90 a month.
Those with a $750,000 mortgage could see their monthly repayments increase by $112, while million-dollar mortgage holders would see an extra $150 added each month.
Tindall said a rate hike would be a tough blow for borrowers, especially since just five months ago, there was a real possibility of one or two rate cuts.
“This cruel twist back to hikes is a stark reminder that borrowers and renters are often asked to do much of the heavy lifting when it comes to reining in inflation.”
“If you’ve got a mortgage, it’s time to start preparing. Understand what your monthly repayments would look like if we saw not just one, but two hikes in quick succession and make sure you can clear this figure,” she concluded.
