Insights from the latest CPI and household spending data

The latest monthly CPI data indicates that inflation began trending upward from the start of FY2025–26. After the year-on-year (YoY) CPI reached a low of 1.9% in June 2025 — falling below the Reserve Bank of Australia’s (RBA) 2–3% target range — inflation increased steadily through the second half of the year, continuing to rise to December 2025.

A closer look at CPI by category shows that housing costs were a key contributor to this upward movement. The housing price index increased markedly from 1.5% in June 2025 to 5.5% in December 2025. Given that housing represents a substantial component of the CPI basket, accounting for approximately 20–25% of total weighting, movements in this category have a significant influence on overall inflation outcomes.

The stronger growth in housing costs relative to the headline CPI suggests that housing-related price pressures are a primary driver of the recent increase in inflation, indicating that the current CPI trend is being disproportionately influenced by the housing sector rather than broad-based price rises across all categories.

Figure 1: Annual Overall and Housing CPI in 2025

The upward trend in CPI is broadly consistent with patterns in household spending. Australian Bureau of Statistics (ABS) data shows a net increase in household expenditure of almost $1 billion between April and May 2025, rising from approximately $76 billion to $77 billion, followed by a steady spending trend in subsequent months. This increase in consumption corresponds with the year-on-year CPI rising from 1.9% in June to around 3.0% in July 2025. Sustained household spending has continued to put pressure on inflation, with housing-related expenditure acting as a key driver.

Policy interventions have also contributed to this momentum. The government incentive introduced on 1 October, allowing first home buyers to enter the market with a 5% deposit, is likely to have supported additional housing demand. This increased purchasing activity added further pressure to prices, contributing to CPI rising to approximately 3.8% by December.

In the context of tight labour market conditions — reflected in a low unemployment rate — alongside factors such as wage growth, productivity dynamics, and seasonal influences, fiscal incentives tend to increase household purchasing power when the economy is already operating close to capacity. As a result, additional demand can translate more directly into price pressures, reinforcing the upward trend in inflation rather than stimulating significant increases in real output.

Figure 2: Total annual household spending

Figure 3: Household spending monthly growth

Source: ABS, FWPA analysis

By spending category, household expenditure on services recorded the strongest growth during the first half of 2025, before shifting toward higher spending on goods from June to December 2025, largely reflecting increased expenditure related to housing activity (Figure 30). This transition suggests that consumption demand remained broad-based, initially supported by services and later reinforced by goods associated with housing and construction.

These trends indicate that inflationary pressures remain relatively persistent, with demand-side factors remaining strong. The sustained level of household spending suggests that price pressures are not easing quickly, contributing to ongoing inflation momentum. In this environment, further monetary policy adjustments may be required to moderate demand and guide CPI back within the Reserve Bank of Australia’s target range of 2–3%.

Figure 4: Household spending by type