Australia inflation meets expectations at 3.6%, reaching a six-quarter high

• Quarterly inflation rose 0.6%, significantly down from 1.3% in the previous quarter, both figures matching Reuters forecasts
• RBA Deputy Governor Andrew Hauser stated rate cuts are 'probably very low' likelihood, calling current inflation levels 'too high' and above the central bank's 2-3% target
• Australia's economy grew 2.1% in Q3, its fastest pace in two years, with officials citing recovery in private sector activity as another reason rate cuts are not needed

Summary: Australia Inflation Reaches Six-Quarter High at 3.6%

Key Data Points:

Australia's Q4 2025 inflation reached 3.6% year-over-year, marking a six-quarter high and exceeding the Reserve Bank of Australia's (RBA) 2-3% target range. The figure met economist expectations but rose from 3.2% in Q3. Quarterly inflation stood at 0.6%, sharply decelerating from the previous quarter's 1.3%.

Market Implications:

The inflation data reinforces the RBA's hawkish stance on monetary policy. RBA Deputy Governor Andrew Hauser stated that inflation "above 3%, let's be clear, is too high" and characterized the likelihood of near-term rate cuts as "probably very low." Governor Michele Bullock echoed this position following the December 9 rate decision, ruling out interest rate cuts for the foreseeable future.

Economic Context:

The inflation reading comes amid Australia's economic recovery, with Q3 growth expanding from a revised 2% in Q2, representing the fastest pace in approximately two years. Bullock cited recovering private sector activity and growth outpacing public demand as reasons rate cuts are unnecessary at present.

Policy Outlook:

The convergence of elevated inflation and strengthening economic growth signals that Australian interest rates will likely remain higher for longer. This contrasts with potential easing cycles in other developed markets, which could support the Australian dollar and impact cross-border investment flows. Fixed-income investors should anticipate sustained yields, while equity markets may face headwinds from prolonged restrictive monetary policy.

The RBA's mandate to control inflation within its target band suggests policy normalization remains distant, with implications for borrowing costs and consumer spending.