Lyla Lindsey
Australia's inflation rate is a hot topic for the country's consumers and economists alike. With the most recent data showing that the Consumer Price Index (CPI) rose by 0.9% in the quarter, and 2.4% over the year to March 2025, it's no surprise that Australian consumers are concerned about the impact of rising prices on their wallets. The annual inflation rate is currently sitting at 7%, above the target range of 2-3% set by the Reserve Bank of Australia (RBA). With the total value of residential dwellings and the cost of living on the rise, it remains to be seen whether the RBA's commitment to reining in CPI will be successful in the months to come.
| Characteristics | Values |
|---|---|
| Consumer Price Index (CPI) | 2.4% year-on-year |
| Annual inflation | 7% |
| Inflation rate in December 2022 | 7.8% |
| Inflation rate in March 2025 quarter | 2.4% |
| Inflation rate in September | 5.4% |
| Core inflation | 2.9% |
| Wage Price Index (WPI) | 0.7% this quarter |
| Total value of residential dwellings | Rose by $26.4 billion to $11,032.2 billion this quarter |
| Number of residential dwellings | 11,294,300 |
| Mean price of residential dwellings | $976,800 |
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What You'll Learn
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a statistical estimate of the average change in prices over time for a basket of consumer goods and services bought by households. It is a well-known indicator of inflation and is used to track inflation over time and compare inflation rates between different countries. The CPI is calculated as a weighted average price of this basket of goods and services, with the items in the basket updated periodically to reflect changes in consumer spending habits. The prices of these goods and services are collected (often monthly) from a sample of retail and service establishments and are then adjusted for changes in quality or features. The CPI can be used to index the real value of wages, salaries, and pensions, to regulate prices, and to deflate monetary magnitudes to show changes in real values.
In the United States, several different consumer price indices are routinely computed by the Bureau of Labor Statistics (BLS), including the CPI-U (for all urban consumers), CPI-W (for Urban Wage Earners and Clerical Workers), CPI-E (for the elderly), and C-CPI-U (chained CPI for all urban consumers). These indices are constructed using the prices of a sample of items collected from 38 geographical areas. The weights for the C-CPI-U are updated monthly to reflect changes in consumption patterns, while the weights for the CPI-U and CPI-W are updated every two years. The BLS also computes consumer price indices for aggregates like the Midwest.
The CPI is one of several price indices calculated by many national statistical agencies. In Australia, the CPI is calculated independently by the Australian Bureau of Statistics (ABS), which produces the CPI each quarter and publishes a monthly indicator that includes updated prices for about two-thirds of the items in the CPI basket. The most recent quarterly inflation figure for September came in at 5.4%monthly CPI has inched up to 4%. Australia's inflation rate peaked in December 2022 at 7.8%annual inflation rate of 7% as of May 2025. The RBA aims to keep annual consumer price inflation between 2 and 3%.
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Interest rates
In Australia, the Reserve Bank Board sets monetary policy with the goal of keeping consumer price inflation between 2% and 3% annually. This target is agreed upon with the Australian Government and outlined in the Statement on the Conduct of Monetary Policy. By maintaining inflation within this range, the purchasing power of money is preserved, and sustainable economic growth is encouraged.
The Consumer Price Index (CPI) is the primary indicator used to measure inflation in Australia. It captures changes in the prices of goods and services that households typically purchase. The CPI is calculated and published quarterly by the Australian Bureau of Statistics (ABS), with a monthly indicator also released.
The latest data from the ABS shows that the CPI rose 0.9% in the most recent quarter. Over the twelve months to the March 2025 quarter, the CPI rose 2.4%. This increase was driven by several factors, including rises in housing, food and non-alcoholic beverage prices, and education costs.
The interest rates set by the central bank can influence inflation by affecting the cost of borrowing and the incentive to spend or save. When inflation exceeds the target range, the central bank may increase interest rates to encourage saving and slow down spending, helping to bring inflation back down. Conversely, when inflation is below target, lowering interest rates can encourage spending and investment, stimulating economic activity and driving up prices.
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Consumer sentiment
Australia's inflation rate is currently high, with the most recent quarterly figure at 5.4% in September. The Reserve Bank of Australia (RBA) aims to keep annual consumer price inflation between 2% and 3%. The RBA Governor, Philip Lowe, acknowledged the challenges of bringing inflation down to this target zone, stating that the path to achieving this balance is "likely to be a bumpy one".
High inflation rates have a significant impact on consumer sentiment, and in Australia, it has declined to levels comparable to those seen during the Covid-19 pandemic. The Westpac-Melbourne Institute Index of Consumer Sentiment reported a decline of 1.5% in September, reaching 79.7 points. This was driven by concerns regarding rising rents, high inflation, and increasing fuel costs. Consumers are bracing themselves for further interest rate hikes, and sentiment remains pessimistic despite tax cuts and energy bill rebates.
The University of Michigan's consumer survey also revealed a downward trend in consumer sentiment, with the mid-month reading for April 2025 falling to 50.8, a significant drop from 57.0 in March. Respondents' expectations for inflation a year ahead jumped to 6.7%, indicating heightened inflation worries. This survey highlighted that consumers across various demographics perceived risks to the economy, with ongoing uncertainty around trade policy and the potential for resurgent inflation.
The impact of high inflation and interest rates is also evident in the shift towards 'buy now, pay later' services. A Lending Tree survey found that 41% of respondents who used these services for groceries missed payment deadlines, reflecting the financial strain on households.
Overall, consumer sentiment in Australia is subdued due to concerns about high inflation and its impact on purchasing power. While the RBA aims to curb inflation, consumers remain cautious and pessimistic about the economic outlook.
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Cost of living
The cost of living in Australia has been impacted by a range of factors, including rising inflation, interest rate hikes, and increases in the prices of essential goods and services.
Inflation in Australia has been high, peaking at 7.8% in December 2022, and remaining at 7% annually as of May 2025. The target inflation rate set by the Reserve Bank of Australia (RBA) is between 2% and 3%, and the high inflation has had a significant impact on the cost of living for Australians.
One of the key contributors to the high inflation rate has been the increase in the prices of essential goods and services. The Consumer Price Index (CPI), which measures the change in prices of goods and services that households typically buy, has risen. In the first quarter of 2025, the CPI rose by 2.4% year-on-year, with the largest contributors to this increase being food and non-alcoholic beverages (+3.4%), alcohol and tobacco (+6.7%), and housing (+1.8%). The high inflation rate has been driven by factors such as the strong uptick in food and electricity prices, with electricity prices in Brisbane rising by 16.3% quarter-on-quarter due to waning government subsidies.
The high inflation has also been impacted by interest rate hikes by the RBA, which have been implemented to try to control inflation. These rate hikes have made borrowing more expensive for households and businesses, further increasing the cost of living. Despite these efforts, the RBA Governor, Philip Lowe, has acknowledged the challenges in bringing inflation down to the target zone, stating that the path to a soft landing is narrow and "likely to be a bumpy one, with risks on both sides".
The combination of high inflation and interest rate hikes has resulted in a decline in consumer sentiment in Australia. Consumers are concerned about the rising costs of rents, fuel, and other essential items, and this has led to a pessimistic outlook for the economy. The Westpac-Melbourne Institute Index of Consumer Sentiment has declined to levels close to the worst since the Covid-19 pandemic in 2020.
However, there are some positive signs that the inflation rate may be stabilizing. The most recent quarterly inflation figure for September 2025 was 5.4%, and there are speculations that the RBA may pause rate rises. The drop in core inflation to within the RBA's target range has opened the possibility of a rate cut in the May policy review, which could provide some relief to the rising cost of living in Australia.
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Housing price index
Australia's inflation rate is currently high, with an annual rate of 7% as of May 2025. The country has seen a peak of 7.8% in December 2022, and while it dipped to 3.6% earlier in 2025, monthly CPI has risen to 4%.
Now, let's focus on the housing price index and how it relates to inflation in Australia.
The housing market in Australia has been experiencing a period of growth, with property values reaching new heights in March 2025, reversing a short downward trend. The national index showed a 0.4% increase in values over the month, marking the second consecutive month of growth, following a three-month decline of 0.5%. This growth is reflected in the rising median house prices across Australia's capital cities and regional areas. As of April 2025, the median dwelling price for Australia was $820,331. The median dwelling price for combined capital cities was $900,629, and for regional towns, it was $666,830.
Looking at individual cities, Adelaide stood out with a substantial month-over-month growth rate of 0.8%. Melbourne, Brisbane, and Sydney also showed positive growth, with values increasing by 0.5%, 0.4%, and 0.3%, respectively. The median house price in Australia's combined capital cities reached $1,014,019 in March 2025, while the median unit price was $688,158. The median dwelling value in regional areas was $586,483.
CoreLogic's Home Value Index (HVI) further emphasizes the rebound in Australian property prices. It recorded an average rise of 0.8% in prices in September 2024, marking eight consecutive months of increases. This indicates a recovery from the property market slump in the latter half of 2022. Across the September 2024 quarter, national values rose by 1%, according to CoreLogic's HVI.
The Australian Bureau of Statistics (ABS) provides additional insights into the housing market. In the December quarter of 2024, the total value of residential dwellings in Australia rose by $26.4 billion to $11,032.2 billion. The number of dwellings increased by 53,200, reaching a total of 11,294,300. However, the mean price of these dwellings decreased by $2,300 to $976,800 during this quarter.
While the housing market in Australia has been experiencing overall growth, it's important to note that there are variations within the market. Some cities and regions may show stronger responses to economic changes, and there can be conflicting trends within the market. Additionally, high inflation and rising rents have contributed to declining consumer sentiment, with Australian consumers bracing for further interest rate hikes.
In summary, Australia's housing price index has been on an upward trajectory, contributing to the overall high inflation rate. The rebound in property prices has led to varying growth rates across different cities and regions, with Adelaide, Melbourne, Brisbane, and Sydney showing positive month-over-month growth rates. The median dwelling prices across Australia and its capital cities and regional towns have increased as of April 2025. However, it's important to monitor the market closely as economic conditions and interest rates can impact the trajectory of housing prices in the future.
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Frequently asked questions
As of May 2025, Australia's annual inflation rate is 7%.
The Reserve Bank of Australia (RBA) aims to keep inflation between 2% and 3%.
The CPI rose 0.9% in the March 2025 quarter, and 2.4% over the twelve months to the March 2025 quarter.
The largest contributors to the annual CPI movement were food and non-alcoholic beverages (+3.4%), alcohol and tobacco (+6.7%), and housing (+1.8%).
Australian consumer sentiment has declined to levels comparable to the Covid-19 pandemic era, driven by concerns about rising rents, high inflation, and increasing fuel costs.
