The Reserve Financial institution of Australia (RBA) elevated the coverage price by 0.25 factors on Tuesday and claimed that it was as a result of the inflationary outlook was in peril of accelerating uncontrolled on account of extreme demand pressures. This adopted final week’s CPI launch which confirmed the December improve to be 0.96 factors. Once we study that improve extra intently, we discover that 97.6 per cent of the December rise within the All Teams CPI was as a result of ‘Vacation journey and lodging’ (most related to Xmas and the one-off Ashes cricket sequence) – 70.9 per cent was as a result of Worldwide vacation journey and lodging and 26.6 per cent as a result of Home vacation journey and lodging. It’s nigh on unimaginable to assemble that as an financial system that’s ‘bursting at its seams’, however all of the lurid contributions from the RBA cheer squad within the media, who appear to spend their skilled lives repeating press releases from organisations just like the RBA, with out giving them any due diligence. The fact is the RBA has bowed to stress from the monetary markets and rewarded the calls for for larger charges from financial institution economists, who work for establishments that revenue from such rises. Such is the state of macroeconomic coverage in Australia.
Newest CPI knowledge
Final week (January 28, 2026), the Australian Bureau of Statistics (ABS) printed the newest – Shopper Value Index, Australia – for the month of December 2025.
For individuals who use this knowledge commonly, the newest launch is a catastrophe (short-term) as a result of all of the formatting and tables have modified.
Additional the previous quarterly sequence is being calculated on a distinction foundation because the month-to-month sequence takes priority.
So it’ll take a while to get my underlying databases sorted out.
The most recent launch despatched the commentators into conniptions on condition that it confirmed that the All Teams CPI rose 3.8 per cent within the 12 months to December 2025, up from 3.4 per cent for the 12 months to November 2025.
The financial institution economists who are actually featured on main media retailers, with none warnings to listeners or viewers that they aren’t ‘impartial commentators’ and that their organisations profit from rate of interest will increase, had been all baying on the moon for the RBA to answer this disastrous CPI ‘print’ (as they name it) and push up charges no less than just a few instances within the coming months.
The headlines in newspapers talked in regards to the financial system ‘busting on the seams’ and about to enter a harmful interval the place inflation was operating uncontrolled and that we wanted to ‘pull our belts in’.
They didn’t word that for the month of December, as soon as seasonal components are taken into consideration, the CPI elevated by simply 0.2 per cent, which if annualised is 2.4 per cent, and effectively throughout the so-called RBA targetting vary.
There was hardly any rise within the trimmed imply measure (3.3 per cent from 3.2 per cent) – noise!
The RBA makes use of a variety of measures to establish whether or not they imagine there are persistent inflation threats.
Please learn my weblog submit – Australian inflation trending down – decrease oil costs and subdued financial system (January 29, 2015) – for an in depth dialogue about using the headline price of inflation and different analytical inflation measures.
The trimmed imply measure is a measure of central tendency that’s achieved not by excluding outliers, however by giving decrease weighting to unstable components.
The abstract, seasonally-adjusted Shopper Value Index outcomes for December 2025 are as follows:
| Element | Quarter % | Annual % |
| All teams CPI | 0.2 (final 0.2) | 3.7 (final 3.5) |
| Trimmed imply sequence | 0.2 (0.3) | 3.7 (3.5) |
| Weighted median sequence | 0.2 (0.3) | 3.6 (3.0) |
The next Desk exhibits the charges of inflation (seasonally adjusted) for the foremost parts of the CPI:
| Element | Present quarter % | Final 12 months % |
| All teams CPI | 0.2 (Final month 0.2) | 3.7 (Final month 3.5) |
| Meals and non-alcoholic drinks | 0.2 (0.3) | 3.5 (3.3) |
| Alcohol and tobacco | 0.5 (0.6) | 4.8 (4.2) |
| Clothes and footwear | -0.9 (0.0) | 3.4 (4.6) |
| Housing | 0.1 (0.9) | 5.5 (5.2) |
| Furnishings, family tools and companies | 0.1 (-0.4) | 1.7 (1.4) |
| Well being | 0.4 (-0.2) | 3.6 (3.6) |
| Transport | 0.3 (0.3) | 1.7 (2.7) |
| Communication | -0.1 (0.6) | 1.1 (1.3) |
| Recreation and tradition | 0.4 (-0.7) | 4.3 (2.3) |
| Training | 0.4 (0.4) | 5.4 (5.4) |
| Insurance coverage and monetary companies | 0.1 (0.3) | 2.5 (2.5) |
The ABS Media Launch – CPI rose 3.8% within the yr to December 2025 – famous that:
The most important contributor to annual inflation in December was Housing, up 5.5 per cent. This was adopted by Meals and non-alcoholic drinks, up 3.4 per cent, and Recreation and tradition, which rose 4.4 per cent …
When costs for some gadgets change considerably, measures of underlying inflation just like the Trimmed imply may give extra insights into how inflation is trending …
Trimmed imply inflation was 3.3 per cent within the 12 months to December 2025, up from 3.2 per cent within the 12 months to November 2025 …
Annual Items inflation was 3.4 per cent within the 12 months to December, up from 3.3 per cent to November. The primary contributor was Electrical energy, which rose 21.5 per cent within the 12 months to December.
Annual Providers inflation was 4.1 per cent within the 12 months to December, up from 3.6 per cent to November. The primary contributors had been Home vacation journey and lodging (+9.6 per cent) and Rents (+3.9 per cent) …
Annual Housing inflation was 5.5 per cent to December, pushed by Electrical energy prices, which rose 21.5 per cent within the 12 months to December …
Annual inflation for Recreation and tradition was 4.4 per cent to December, up from a 2.0 per cent rise to November.
Home vacation journey and lodging costs rose 9.6 per cent within the 12 months to December, up from a 3.3 per cent rise within the 12 months to November.
In month-to-month phrases, costs for Home vacation journey and lodging rose by 8.2 per cent as a result of sturdy demand within the lead as much as Christmas, the summer season college holidays and main occasions such because the Ashes cricket take a look at sequence.
The next graphs present the annual and month-to-month inflation charges (noting that the info sequence now begins at April 2024, given the change in ABS methodology.
The media went loopy after they noticed the All Teams CPI rise by 0.96 per cent month-to-month rise for December 2025.
However a better examination demonstrates there isn’t any accelerating pattern in inflation.
The next desk exhibits the contributions of that 0.96 per cent general rise by the highest 35 contributing particular person CPI parts.
Observations:
1. The annual inflation price rose barely and was largely pushed by one-off components – electrical energy rebates ending and a significant vacationer enhance due to the Ashes cricket sequence, which attracted a significant improve in journey and worth gouging from the airways and hospitality suppliers.
2. 97.6 per cent of the December rise within the All Teams CPI was as a result of ‘Vacation journey and lodging’.
3. 70.9 per cent was as a result of Worldwide vacation journey and lodging and 26.6 per cent as a result of Home vacation journey and lodging.
4. Most of that journey was related to Xmas holidays (seasonal impact) and the irregular Ashes Cricket sequence, which attracts many vacationers to Australia.
5. The electrical energy part has been driving inflation not too long ago however that’s all right down to the truth that the Queensland and Western Australian governments have terminated their power subsidies.
6. Taking the journey and electrical energy out of the December CPI consequence, we get an annual inflation price of three per cent, down from the height of three.1 per cent in October.
7. If we had been to challenge into the long run, it’s exhausting to see any new threatening inflationary tendencies on this knowledge.
However the RBA sees the info in another way because it dances with its personal shadow.
RBA response
On February 3, 2025, the RBA hiked the rate of interest by 0.25 factors to three.85 per cent after the ‘monetary markets’ put it below huge stress to take action.
Within the – Assertion by the Financial Coverage Board: Financial Coverage Choice (issued February 3, 2026) – the RBA mentioned:
Whereas inflation has fallen considerably since its peak in 2022, it picked up materially within the second half of 2025.
Whats up!
The graphs above don’t accord with the declare that CPI inflation “picked up materially within the second half of 2025”.
It was largely benign till December, when a significant worldwide sporting occasion mixed with worth gouging from journey suppliers (airways and so forth) drove a once-off escalation.
The RBA continued:
Whereas a part of the pick-up in inflation is assessed to replicate short-term components, it’s evident that personal demand is rising extra shortly than anticipated, capability pressures are better than beforehand assessed and labour market situations are somewhat tight.
As famous above “a part of the pick-up in inflation” (vacation journey) accounted for 97.6 per cent of the December improve.
Half-of or most-of.
If there are ‘capability pressures’ then they aren’t seen within the December knowledge.
The RBA additionally claimed that:
Varied indicators counsel that labour market situations stay somewhat tight and that they’ve stabilised in current months, in step with the pick-up in momentum in financial exercise. The unemployment price has been somewhat decrease than anticipated and measures of labour underutilisation stay at low charges.
That is pushing the English language to the extremes of absurdity.
In December 2025, there have been 646,600 individuals formally unemployed in Australia – that’s, 4.1 per cent of the labour power.
Including to that’s the truth that 5.7 per cent of the employed labour power are underemployed and on common need an extra 14 odd hours additional work per week.
Taken collectively, the broad labour underutilisation price (sum of unemployment and underemployment) is 9.8 per cent.
General, there are 1,501.8 thousand folks both unemployed or underemployed and who need to work extra.
The employment-to-population ratio and the participation price are additionally falling.
What doable which means of the RBA time period “low charges” might apply to this knowledge.
The one which means that we are able to connect to the RBA evaluation is that it’s leaping on the NAIRU shadow.
Their estimate of the NAIRU (the legendary unemployment price that’s related to steady inflation) is someplace between 4.25 and 4.5 per cent, though they’re unable to again that up with any wise evaluation.
The present official unemployment price is 4.1 per cent.
In different phrases, the RBA continues to need the next unemployment price for causes that escape any logic, on condition that wage pressures are declining and had been by no means threatening anyway.
The truth is in the newest knowledge obtainable, actual wages fell by 0.6 per cent.
The RBA is a lackey to the monetary markets
The monetary markets took successful when the RBA diminished charges considerably in 2025.
They’ve been very noisy in regards to the ‘want’ (alleged) for rate of interest rises.
After all, their monetary market bets and financial institution margins relied on the RBA doing their work for them.
Which it did.
And demonstrated simply how compromised that establishment has turn out to be.
There’s a type of ‘internal circle’ echo chamber in Sydney surrounding the RBA workplaces – and officers and financial institution economists and merchants all work together – speaking with one another.
It doesn’t take a lot for that type of social interplay mixed with an awesome acceptance of (inaccurate) New Keynesian pondering for the RBA to fully lose contact with actuality and simply turn out to be an agent for the speculators within the monetary markets.
Final Tuesday’s resolution is actually in line with that evaluation.
Conclusion
The issue is that the low-income mortgage holders who the RBA punishes when rate of interest rises are unlikely to be the folks indulging within the worldwide journey growth that drove the December CPI determine.
However the RBA has by no means cared in regards to the distributional penalties of its selections, which shift actual revenue into the fingers of these with intensive monetary belongings (when charges rise) on the expense of low-income mortgage holders who’re at all times hanging on by the pores and skin of their enamel.
That’s sufficient for at the moment!
(c) Copyright 2026 William Mitchell. All Rights Reserved.
