Higher-than-expected inflation has increased pressure on the Reserve Bank of Australia (RBA) to raise interest rates next week, potentially driving up mortgage costs.

Annual price growth accelerated at the end of 2025, exceeding forecasts and reinforcing expectations of further rate hikes—one of the central bank’s primary tools to cool the economy.

According to the Australian Bureau of Statistics, the Consumer Price Index (CPI) rose 3.8% in the year to December, up from 3.4% in November. On a monthly basis, the CPI climbed 1%.

The trimmed mean, which reflects underlying inflation by excluding extreme price changes, rose 3.3% annually in December, edging up from 3.2% the previous month.

The RBA’s rate-setting board will announce its first decision of 2026 this Tuesday.

Following Wednesday’s inflation data, economists at Westpac and ANZ revised their forecasts and now expect the RBA to raise the cash rate next week. All four major banks are predicting a 0.25 percentage point increase.

Rick Maggi CFP, Financial Advisor Perth, Westmount Financial