Falling inflation data is a good signal for borrowers

Annual inflation fell more than expected in November, easing pressure on household budgets despite huge spending opportunities on Black Friday and Cyber ​​Monday.

The Consumer Price Index (CPI) rose 3.4% in the 12 months to November, down from 3.8% recorded in October.

The all-important cut came in at 3.2%, just outside the Reserve Bank’s target rate of 2-3% but down slightly from 3.3% in October.

This first economic summary for 2026 comes after a poor end to the year for borrowers. What started as an unexpected spike in inflation in September turned into a steady pattern of inflation in October.

Today’s figures will also be a relief to the Bank, which has been under fire after it failed to explain the increase in its forecast.

A closer look

The CPI reading of 3.4% will be a pleasant surprise for households with mortgages, with many economists expecting only a slight cooling at best.

Westpac’s forecast ahead of the data release noted that the bank expected annual inflation to remain unchanged.

Australia’s biggest lender Commonwealth Bank had forecast a slight reduction, expecting annual CPI to come in at 3.6%.

The biggest contributor to the decline in inflation in November was housing, which rose 5.2%, followed by food and non-alcoholic beverages (+3.3%) and transportation (+2.7%).

Electricity costs, rising rents and new dwellings have had a major impact on the rise in housing factors included in the CPI calculation.

Residence permits have been on the rise, with new Australian Bureau of Statistics (ABS) figures for November showing the total number approved rose 15.2% in November to 18,406.

Is the rate going up?

The Reserve Bank will continue to watch for rate cuts ahead of its first meeting of the year next month.

This is calculated by “trimming” the most volatile items the CPI assumes, those with the largest price changes, to get a more realistic picture of the underlying inflation trend.

While annual inflation is the best news borrowers could have hoped for to start the year, undeniable inflation is now back in the discussion for the first time in more than 12 months.

RBA governor Michele Bullock has warned that further easing is off the table. Photo: Hilary Wardhaugh

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Both the Commonwealth Bank and National Australia Bank have closed out 2025 expecting a rate hike next month, an assumption that could change after this latest data.

A February rate hike may now be premature, or December CPI figures later this month will come before the RBA’s first meeting of 2026, presenting a clearer picture of the way forward.

A long term with the cash rate at its current level of 3.60% is expected by ANZ and Westpac.

“It would be prudent for the RBA to wait and see developments in the labor market. The recent softening of employment numbers makes it unlikely that real wage growth will pick up,” Deloitte Access Economics partner Stephen Smith said.

“Any policy response must be careful and cautious.”

Mathematics under the microscope

The November figures are the second release of the broad ABS monthly CPI, introduced in part to help the Reserve Bank make more frequent forecasts and make rate decisions with more information.

When the bank meets next in less than four weeks, the effectiveness of this new information system is likely to be discussed.

Markets are currently pricing in a 36% chance of a rate hike next month, making the fourth decision in a row the most anticipated outcome.

The RBA will make its next monetary policy decision on 3 February.