Australia's CPI has exceeded expectations, with persistent inflation in services and housing, alongside resilient labor data. These factors strengthen the case for a cautious 25bp rate hike by the Reserve Bank of Australia (RBA) in February, notes Deepali Bhargava, ING's Regional Head of Research, Asia-Pacific.

RBA on track for cautious rate increase

"CPI inflation for December – and therefore for the fourth quarter of 2025 – surprised to the upside. Trimmed mean CPI rose to 3.4% year-on-year, slightly above the 3.3% consensus, driven by persistent price pressures in housing (up 5.5% YoY) and in recreation and culture (up 4.5% YoY)."

"Taken together, these developments strengthen the case for further tightening. We now expect the RBA to raise the cash rate by 25bp in February, as the December CPI print confirms inflation remains consistently above target and is unlikely to moderate in line with the Bank’s earlier expectations."

"This suggests that if the RBA does proceed with a February hike, it is likely to be a cautious one, reflecting the delicate balance between supporting growth and containing stubbornly high inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)