Australia's inflation rate rose to 3.6% year-on-year in the fourth quarter of 2025, marking its highest level in a year and a half and reinforcing the central bank's stance that interest rate relief will be limited in the near term.

The quarterly figure, aligned with economist forecasts, increased from the 3.2% reading in the previous quarter. On a monthly basis, the consumer price index rose 3.8% in December, exceeding expectations, with housing costs cited as the primary driver.

The data validates recent cautious rhetoric from Reserve Bank of Australia (RBA) officials. Deputy Governor Andrew Hauser had previously stated that inflation above 3% is "too high" and that the likelihood of further rate cuts soon was "probably very low." Governor Michele Bullock echoed this position in December, indicating rate cuts were not on the foreseeable horizon.

Analysts interpret the persistent price pressures as locking the RBA into a patient, hawkish posture. "The higher inflation reading will prompt the central bank to maintain a 'cautious stance,'" said Shier Lee Lim, Lead FX & Macro Strategist for Asia Pacific at Convera. While an immediate rate hike in February is considered unlikely, the door for further tightening remains open should inflation prove sticky above the bank's 2-3% target range.

The inflation trajectory presents a policy challenge amid signs of economic resilience. Australia's economy grew 2.1% in the third quarter, its fastest pace in about two years, with Governor Bullock noting a recovery in private-sector activity. This combination of firm growth and elevated inflation strengthens the case for the RBA to maintain restrictive monetary settings for an extended period.