Business Builders | Inflation Heats Up, Businesses Ask What Will the RBA Do Next?

Cec Busby reports on the implications of Australia's latest inflation data for small businesses, households and the Reserve Bank's next move, published by Business Builders.

ABS figures show the Consumer Price Index rose 3.8 per cent in the year to December 2025, up from 3.4 per cent in November and well above the RBA's 2–3 per cent target band. Housing was the largest contributor at 5.5 per cent annual growth, followed by food and non-alcoholic beverages and recreation and culture. Underlying inflation, measured by the trimmed mean, rose to 3.3 per cent — a broad-based signal that price pressures are not confined to isolated categories. Electricity prices surged 21.5 per cent over the year, with services inflation climbing to 4.1 per cent, driven by rents and domestic travel costs.

Oliver Hume property economist Matt Bell said the trimmed mean result coming in above market expectations had effectively cemented the case for a rate rise. Bell stated that a 0.25 per cent hike at the RBA's February meeting was now pretty much locked in, reflecting the significant shift in rate expectations that had unfolded over the second half of 2025.

For small businesses, the data presents a difficult environment. CPI-indexed commercial leases are translating directly into higher overheads, while food, energy and logistics costs continue to climb. Economists from CreditorWatch and Roy Morgan warned that further rate rises would increase mortgage stress and dampen discretionary consumer spending — squeezing businesses from both the cost and revenue sides simultaneously.

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