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RBA Inflation Challenge Reopens the Case for Tightening
By: David Scutt, Market Analyst
Australia’s inflation trajectory is once again testing the Reserve Bank of Australia’s policy assumptions. As of the December 2025 quarter, underlying price pressures have not only remained elevated but have begun accelerating again, undermining confidence in a prolonged pause. That shift is forcing markets to reassess whether the RBA can maintain its current stance so soon after ending its easing cycle. The renewed tension between inflation momentum and policy guidance is becoming a central macro risk for Australia.
David Scutt, FOREX.com APAC Market Analyst at StoneX, has closely tracked Australian inflation cycles and their transmission into interest rate markets. His focus on underlying inflation measures and rate-market pricing provides a clear lens on why recent data has reopened the tightening debate.
Key Themes
- Trimmed mean inflation exceeded the RBA’s forecasts, signalling renewed policy pressure.
- Services inflation re-accelerated, raising concerns about domestic price persistence.
- Market pricing now reflects a high probability of renewed RBA rate hikes.
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Discover Actionable Insights with the latest Market Outlook ReportsRBA Inflation Momentum Challenges Policy Stability
RBA inflation dynamics are increasingly inconsistent with a stable policy outlook as underlying pressures accelerate. Trimmed mean inflation rose 0.9% in the December quarter, lifting the annual rate to 3.4% and overshooting the Reserve Bank of Australia’s own projections. David Scutt emphasises that “on a six-month annualised basis, trimmed mean is now running at 3.86%”, marking the fastest pace since late 2023 when the RBA was still hiking rates. Consequently, inflation momentum is drifting further from the central bank’s 2.5% target, narrowing the margin for policy patience.
RBA Rate Expectations Shift as Markets Reprice Risk
RBA policy risk is now being transmitted directly into interest rate markets as investors adjust expectations. Swaps pricing implies a 72% probability of a 25 basis-point hike at the February meeting, with more than two full hikes priced by November. Scutt notes that this repricing reflects the reality that “inflation is not only elevated but accelerating further away from the bank’s mandate”. As a result, markets are increasingly positioning for the possibility that the Reserve Bank of Australia becomes the first G10 central bank to resume tightening.
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--- Written by Frédéric Guétin, StoneX TV Producer
--- Expert: David Scutt, FOREX.com APAC Market Analyst
- Currencies
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