Australian Inflation Falls More Than Expected to 3.4% in November, Raising Questions About Timing of Reserve Bank Rate Hikes

Inflation in Australia fell more than expected in November, offering a potential reprieve for households and financial markets, yet economists warn that price pressures remain elevated, leaving interest rate decisions uncertain.

Data released by the Australian Bureau of Statistics on Wednesday showed consumer prices rose 3.4% in the year to November, below the 3.6% increase economists had forecast. This marked a decline from October’s 3.8% annual rise, which had fueled predictions that the Reserve Bank of Australia (RBA) might raise interest rates as early as February.

The softer-than-expected inflation print immediately affected financial markets. The Australian dollar slipped from 67.38 US cents to 67.24, while the ASX200 index jumped from 8,700 to 8,734 points, reflecting investor confidence that rates could remain lower for longer.

Following the data, markets priced in a roughly two-thirds chance that the RBA would keep rates on hold at its February board meeting. However, expectations for future rate hikes remain in place, with many economists anticipating at least one increase by June and a possible second before the end of 2026. NAB economists continued to forecast hikes in both February and May.

Stephen Smith, partner at Deloitte Access Economics, said a February rate hike could be premature, cautioning that the reasons for recent inflation spikes were still unclear. “Any policy response should be careful and cautious, rather than impulsive,” he said, emphasizing the importance of measured monetary decisions.

ANZ economists echoed this sentiment, predicting the RBA would face a “close decision” but likely leave rates unchanged in the near term. They noted that some inflation categories had begun reversing prior price increases.

Retail discounts associated with Black Friday sales contributed to the moderation in prices, with clothing and footwear falling 3.1% between October and November, and furniture down 4.6%. Domestic holiday prices fell 4.1% in the month, while international holiday costs unexpectedly slipped 0.6%, suggesting broader easing in parts of the inflation basket, according to Diana Mousina, AMP economist.

“It’s good to see we are getting this moderation, and the surprising price increase we have seen in the past few months could just be one-offs,” Mousina said.

Health costs also declined 0.5% in November, following expanded bulk-billing incentives on 1 November 2025, which reduced out-of-pocket expenses for households.

However, inflationary pressures remain strong in several key sectors, keeping the door open for rate hikes later this year. Housing costs rose 1.1% in November and climbed 5.2% over the year, driven by higher rents, new home construction, and electricity costs, which surged 19.7% after rebates lapsed.

Food prices increased 3.3% annually, with meals out and takeaway up 3.5% due to higher wages and ingredient costs. Meat and seafood prices rose 3.9%, reflecting strong overseas demand for Australian produce.

Paula Gadsby, senior economist at EY, warned that inflation is likely to remain elevated in December quarter data, to be released the week before the RBA meets again. “For the Reserve Bank to reverse this recent trend and get inflation moving back to [2.5% or] the mid-point of the target band, interest rates will need to be lifted in the first half of 2026,” she said.

While November’s data provides some relief for consumers, the uneven nature of inflation and persistent price rises in essential sectors indicate that monetary policy will continue to balance caution with the need to contain inflationary pressures. Markets and households alike will be closely watching the RBA’s next moves as Australia navigates the delicate path between economic growth and price stability.