The S&P/ASX 200 Index (ASX: XJO) started the day in the green before running into headwinds at 11:30am AEDT.
That's when the Australian Bureau of Statistics (ABS) released the latest inflation data covering the full 2025 calendar year.
In the minute following that release, the ASX 200 sank 0.2% as investors reassessed the odds of a potential interest rate hike from the Reserve Bank of Australia (RBA), with the odds of a rate cut all but evaporating.
The RBA meets again next week and makes its first interest rate announcement for 2026 on Tuesday, 3 February. The official cash rate currently stands at 3.60%.
Here's what's got investors feeling jittery today.
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ASX 200 dips on rising inflation
The ABS reported that the Consumer Price Index (CPI) increased by 3.8% in the 12 months to December.
"The 3.8% annual CPI inflation to December was up from 3.4% to November," ABS head of prices statistics Michelle Marquardt said.
Spurring the price rises pressuring the ASX 200 today, housing increased by 5.5%, while food and non-alcoholic beverages prices increased by 3.4% in 2025. Recreation and culture rose by 4.4%.
Unfortunately, trimmed mean inflation, the RBA's preferred gauge, which takes out certain volatile items, also ticked higher.
"Trimmed mean inflation was 3.3% in the 12 months to December 2025, up from 3.2% in the 12 months to November 2025," Marquardt said.
What are the experts saying on RBA interest rates?
Commenting on the outlook for interest rates amid the resurgent inflation figures, Russell Chesler, VanEck head of investments and capital markets, said (quoted by The Australian Financial Review):
The market has been predicting two rate hikes this year, with the first in May, but at this level of inflation, the first rate hike could be sooner – possibly even at next week's RBA meeting.
Global X senior investment strategist Marc Jocum also expects ASX 200 investors will see interest rate hikes in 2026.
According to Jocum:
This December print matters because the RBA focuses most heavily on the quarterly trimmed mean as its preferred gauge of underlying inflation, rather than reacting to short-term volatility in the monthly headline numbers. Unfortunately, this quarterly number came hotter than expected at 3.4% year on year compared to 3.3% expected and 3.0% in Q3 2025.
Noting that inflation remains above the RBA's 2% to 3% target range, and has been rising, Jocum said, "A hawkish hold still seems to be the central scenario for February's meeting, but the risks around that call are clearly skewed and mounting toward a rate hike."
The ASX 200 remains up 6.3% over 12 months.
