The latest Monthly CPI Indicator for Australia, released on November 26, 2025, showed headline inflation at 3.80% year-over-year (YoY), up from 3.50% in October and above the consensus estimate of 3.90%[1]. This marks the highest inflation reading since April 2025, signaling persistent price pressures despite recent monetary tightening. The geographic scope covers the entire Australian economy, with data compiled from urban and regional centers nationwide. Temporally, the indicator reflects price changes over the past 12 months, with a focus on monthly momentum.

Drivers this month

• Shelter costs contributed 0.22 percentage points (pp), reflecting rising rents and housing services.
• Energy prices added 0.15 pp, influenced by global oil price volatility.
• Food inflation remained steady, contributing 0.10 pp.
• Used car prices moderated, subtracting -0.05 pp from the headline.

Policy pulse

The 3.80% inflation rate remains above the RBA’s 2–3% target band, sustaining pressure on the central bank to maintain restrictive monetary policy. The reading suggests underlying inflation is sticky, complicating the RBA’s path to a soft landing.

Market lens

In the first hour post-release, the Australian dollar (AUD/USD) dipped 0.15%, while 2-year government bond yields rose 5 basis points, reflecting increased expectations of further rate hikes. Breakeven inflation swaps edged higher, signaling market concerns about persistent inflation.

Core macroeconomic indicators provide context for the inflation print. Australia’s unemployment rate held steady at 3.70%, near historic lows, supporting wage growth that feeds into inflation. Wage growth accelerated to 4.20% YoY, up from 3.80% last quarter, underpinning domestic price pressures. GDP growth slowed slightly to 2.10% annualized in Q3 2025, reflecting softer consumer spending amid higher borrowing costs.

Monetary Policy & Financial Conditions

The RBA has raised the cash rate to 4.25%, the highest level since 2012, aiming to curb inflation. Financial conditions have tightened, with mortgage rates rising by 75 basis points over the past three months. Credit growth has slowed, but household debt remains elevated at 190% of disposable income, limiting consumption resilience.

Fiscal Policy & Government Budget

The federal government’s budget remains mildly expansionary, with increased infrastructure spending and targeted social support. However, fiscal stimulus is constrained by rising debt servicing costs amid higher interest rates. The budget deficit is projected at 1.80% of GDP for FY2025-26, slightly wider than last year.

Drivers this month

• Shelter inflation accelerated to 4.50% YoY, the highest since early 2024.
• Energy inflation volatility reflects global oil price spikes amid Middle East tensions.
• Food inflation remained stable at 3.10% YoY, with fresh produce prices rising moderately.

Market lens

Immediate reaction: AUD/USD fell 0.15%, 2-year yields rose 5 bps, and inflation swaps climbed 3 bps post-release. This reflects market concern over sustained inflation and potential for further tightening.

Looking ahead, inflation dynamics in Australia face multiple influences. The baseline forecast anticipates inflation moderating to 3.20% by mid-2026 as monetary policy tightens further and supply-side pressures ease. However, risks remain skewed.

Bullish scenario (20% probability)

• Global commodity prices stabilize or decline, easing energy and food costs.
• Wage growth slows due to labor market softening.
• Inflation falls below 3% by Q3 2026, allowing the RBA to pause rate hikes.

Base scenario (55% probability)

• Inflation remains around 3.00–3.50% through early 2026.
• Gradual monetary tightening continues, with the cash rate peaking near 4.50%.
• Moderate fiscal restraint limits demand-side inflation pressures.

Bearish scenario (25% probability)

• Geopolitical shocks push energy prices higher, sustaining inflation above 4%.
• Persistent wage-price spiral entrenches inflation expectations.
• RBA forced into aggressive rate hikes, risking recessionary pressures.

External Shocks & Geopolitical Risks

Heightened tensions in the Middle East and China’s economic slowdown pose risks to commodity prices and trade flows. These external shocks could amplify inflation volatility and disrupt Australia’s export-driven economy.

Australia’s November CPI print underscores the challenge of taming inflation amid mixed economic signals. While monetary policy is firmly restrictive, inflation remains sticky due to shelter and energy costs. Financial markets are pricing in a cautious tightening path, balancing growth risks and inflation control. Structural trends such as elevated household debt and supply chain constraints add complexity to the outlook. Policymakers must navigate these headwinds carefully to avoid derailing the economic recovery.

Financial Markets & Sentiment

Investor sentiment remains cautious. The ASX 200 index showed modest declines post-release, reflecting concerns over profit margins amid rising input costs. The Australian dollar’s slight depreciation signals uncertainty about the RBA’s next moves. Credit spreads widened marginally, indicating risk aversion in fixed income markets.

Structural & Long-Run Trends

Long-term inflation expectations remain anchored near 2.50%, supported by credible central bank policy frameworks. However, demographic shifts and housing supply shortages continue to exert upward pressure on prices. Technological adoption and productivity gains may moderate inflation over the medium term.

Since 2020, Australian CPI inflation and the AUDUSD exchange rate have shown a positive correlation, particularly during inflation surges. For example, the 2021 inflation spike coincided with AUDUSD rising from 0.70 to 0.78, reflecting commodity-driven currency strength. Conversely, inflation dips in 2023 aligned with AUDUSD weakening below 0.70. This relationship highlights how inflation data can drive currency market sentiment and central bank expectations.