Prices rose 3.8% through 2025

Underlying inflation was 0.2% through December and 3.3% through the year in seasonally adjusted terms - outside of the RBA's 2% to 3% target range.

Rising 5.5% throughout the calendar year, housing costs were the biggest contributor to inflation, which will be unsurprising for many given the Cotality home value index showed the average dwelling price rose 8.6% in 2025.

Food and non-alcoholic beverage prices rose 3.4% through the year, while recreation and culture became 4.4% more expensive compared to the end of 2024.

RBA hike now inevitable?

This latest read means annual trimmed mean inflation (excluding things with volatile prices like food and energy) has now been outside of the RBA's 2% to 3% target range since July.

This was broadly in line with what most economists were expecting, but annual service price inflation returning to 4.1% may suggest that underlying inflationary pressures are more persistent than they appeared when the rate cuts began early last year.

After the shock drop to 4.1% unemployment in December, many economists now feel the RBA will have no choice but to once again hike the cash rate to 3.85% at next week's monetary policy meeting.

Westpac and ANZ have already officially changed their predictions for the February decision to a 25 bps hike.

However, currency speculators appear unconvinced this inflation read moves the needle, with only negligible gains for the AUD against the Euro, USD, or Yen in the immediate aftermath of this release.

Higher interest rates tend to mean higher returns on assets like bonds, so expectations of an RBA hike can increase demand for the dollar from international traders.

Productivity still the problem?

Inflation has picked up again despite economic growth not being particularly eye catching - GDP rose 2.1% over the twelve months to September, well below that recorded in 2021 and 2022.

Many economists feel the biggest problem is labour productivity: how much the economy produces per hour of work.

Over time, productivity tends to improve, meaning the economy can produce more for a given amount of capital and labour, and grow sustainably.

As demand for something increases with economic growth, ideally the production process also becomes more efficient, so the producer can supply more of the product without having to increase its relative spending (and therefore prices) too much.

The past few years have seen low, sometimes even declining, labour productivity, which HSBC Chief Economist Paul Bloxham says is the "key story" that explains why inflation is picking back up.

"This has constrained the supply side of the economy and its ability to grow," Mr Bloxham explained.

Household budgets back under the pump?

With underlying inflation now as high as it's been since 2024, many households are likely feeling the strain.

Consumer Finance Expert at Zyft Joel Gibson says today's read "confirms what many feared - the temporary relief of 2025 is over."

"A probable February rate rise and a colossal blow to household budgets," was his diagnosis.

He said the average Aussie household is likely to spend an additional $2,192 over 2026, recommending people look to their energy and insurance bills for the biggest savings.

"It's not about skipping your morning $5 coffee...if you spend five minutes checking if your energy plan is any good or reviewing your insurance policies, you could save hundreds of dollars without even having to give up the caffeine."