High Inflation Stokes Expectation of Rate Hike by RBA
The probability of an interest rate hike by the Reserve Bank of Australia next week has increased, as inflation was higher than expected in the December 2025 quarter when trimmed mean CPI inflation came in at 3.3%.
Inflation being higher than anticipated during the quarter adds to a series of strong economic indicators that have reinforced the case for tighter monetary policy.
For December 2025 alone, headline CPI rose 1% month-on-month which marked the largest increase since July 2025 as the expiry of government rebates pushed electricity prices higher alongside strong holiday demand for travel and accommodation.
Housing costs have grown along with higher power bills over the year to December which were key drivers behind the stronger than expected inflation outcome.
All four major banks now expect a rate increase at the RBA’s upcoming meeting on Tuesday which reflects confidence that inflation is too elevated for policy to stay unchanged.
If interest rates rise, banks are the first beneficiaries as variable loan rates reprice faster than deposit rates which supports higher net interest margins and improves profitability.
Gold, silver and copper can also perform well during a rate hiking phase as higher rates often signal persistent inflation and economic stress which increases demand for hard assets that preserve real value and have real world usage.
The businesses that sell essential goods and services and operate with relatively low capital expenditure requirements will do well.
Capital intensive and high growth companies often face pressure as higher interest rates lift borrowing costs and reduce the present value of future earnings.
Companies with high debt levels, real estate stocks and consumer discretionary businesses are vulnerable while consumer staples tend to remain more resilient as households prioritise everyday necessities.
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