Inflation ticked higher at the end of the year, driven by energy prices and a surge in holiday travel, interrupting the easing trend seen through November and underscoring the uneven nature of Australia’s inflation path.
Figures from the Australian Bureau of Statistics show headline inflation rose to 3.8 per cent in the 12 months to December, up from 3.4 per cent in November. The lift was widely anticipated, with temporary factors playing a central role, even as some measures of underlying inflation showed signs of stabilising rather than accelerating sharply.
Treasurer Jim Chalmers described the increase as “unwelcome but unsurprising”, noting that inflation “has eased substantially since we came to office but is still higher than we’d like”. He said the latest data reflected a mix of short term influences and more persistent pressures, particularly in housing.
“Temporary factors drove some of the tick up, with inflation still expected to decline over time,” Chalmers said. “We’ve seen around the world that inflation doesn’t always moderate in a straight line.”
The December figures mark a shift from November’s data, which showed inflation easing more broadly. In November, headline CPI fell from 3.8 per cent to 3.4 per cent, electricity price growth slowed as rebates flowed through, and services inflation softened. By contrast, December saw the impact of energy rebates fading in some states and seasonal demand pushing up travel and recreation costs, reversing part of the earlier moderation without signalling a return to sustained acceleration.
The ABS data shows the monthly measure of underlying inflation rose by 0.2 per cent in December, down from 0.3 per cent in November. In annual terms, underlying inflation stood at 3.3 per cent. The quarterly measure eased to 0.9 per cent in the December quarter, compared with 1.0 per cent in September, though the annual quarterly figure edged higher to 3.4 per cent.
Michelle Marquardt, head of prices statistics at the Australian Bureau of Statistics, said: “The 3.8 per cent annual CPI inflation to December was up from 3.4 per cent to November.”
“Temporary factors drove some of the tick up, with inflation still expected to decline over time,” Chalmers said. “We’ve seen around the world that inflation doesn’t always moderate in a straight line”
Housing was the largest contributor to annual inflation, rising 5.5 per cent over the year, followed by food and non-alcoholic beverages at 3.4 per cent and recreation and culture at 4.4 per cent. Electricity prices rose 21.5 per cent over the year, largely reflecting the running down of state government energy rebates in Queensland and Western Australia. Excluding the impact of those rebates, electricity prices rose 4.6 per cent over the year, unchanged from November.
Travel costs climbed sharply during the holiday period. Domestic holiday travel and accommodation prices rose 9.6 per cent over the year and jumped 8.2 per cent in December alone, driven by strong demand through school holidays and major events. International travel costs also lifted, with airfares rising across many popular destinations.
Food prices continued to place pressure on household budgets. Meat and seafood prices rose 4.4 per cent over the year, with beef and lamb both increasing by more than 10 per cent amid strong overseas demand. Fruit and vegetable prices climbed 4.0 per cent, reflecting weather-related shortages and reduced supply in some categories.
Chalmers pointed to the broader trajectory of inflation over recent years, noting that headline inflation had previously been higher and rising rapidly. “Under Labor, inflation is much lower than we inherited,” he said, adding that economic growth was picking up, unemployment remained low, participation was near record highs, real wages were growing, and public debt had fallen.
He said the government would continue to balance cost-of-living relief with longer term reforms. “We’ve made a lot of progress together on the economy but the job’s not done because people are still under pressure,” Chalmers said. “That’s why we continue to roll out responsible cost-of-living relief at the same time as we modernise Australia’s economy.”
Stephen Koukoulas, one of Australia’s most prominent economic commentators, warned that stubborn underlying inflation could reopen the door to higher rates. “Inflation misbehaves—let’s talk about hikes, maybe,” he said. “For the past 4 months, the annual increase in the trimmed mean has been hovering at 3.2 or 3.3%, clearly 0.75 ppts above the RBA target. For that reason alone, a rate hike will be discussed at next week’s RBA meeting and depending on the biases of the Board, it could well be delivered.”
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