Inflation data: RBA expected to raise interest rates in February after inflation rose to 3.8 per cent.

Even before the latest inflation data was released, the Australian dollar on Wednesday morning had climbed above 70 US cents for the first time in two years, with currency markets bracing for an RBA hike on February 3.

Housing costs last year climbed by 5.5 per cent while education expenses went up by 5.4 per cent ahead of recreational services like gym memberships soaring by 4.4 per cent.

Overall services inflation is still a major challenge, soaring by 4.1 per cent over the year.

Goods inflation is also on the high side at 3.4 per cent.

Financial markets were already expecting a February rate rise, rating it as a 60 per cent chance.

Yields on one-year Australian Government bonds rose only slightly to 4.07 per cent, up from 4.06 per cent.

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Treasurer Jim Chalmers will front the media shortly after horror inflation data doomed Aussie borrowers to an almost-certain interest rate rise next week.

Dr Chalmers will speak at 12pm AEDT from Brisbane. We will bring you the latest updates from that media conference.

Home borrowers are now very likely to cop another interest rate rise next week with inflation even further above the Reserve Bank of Australia’s target band.

Inflation at the end of last year accelerated to 3.8 per cent, up from the 3.4 per cent pace in the year to November 30, following the end of the Federal Government’s $75 quarterly electricity rebates.

This consumer price index number was further above the RBA’s 2-3 per cent target.

But even without volatile items - like power prices, petrol, fruit and vegetables and holiday accommodation - underlying inflation was also on the high side.

The trimmed mean, the Reserve Bank’s preferred measure of inflation, climbed by 3.3 per cent over the year.

In December alone, it went up by 1 per cent, which economists suggest would almost certainly trigger an RBA interest rate rise on Tuesday next week.

Another 25-basis point interest rate rise would add $111 to monthly repayments on an average $694,000 new mortgage and undo the effects of the Reserve Bank’s August rate cut.

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Seasonally adjusted inflation rose to 3.8 per cent in December, creating a nightmare situation for the RBA and borrowers.

The largest contributors to annual inflation over the past 12 months were housing (+5.5 per cent), food and non-alcoholic beverages (+3.4 per cent), and recreation and culture (+4.4 per cent).

The rimmed mean - which strips out volatility - was 3.3 per cent for the 12 months to the end of December, up from 3.2 per cent in the previous quarter’s reading.

Deputy Liberal Leader Ted O’Brien and shadow minister for finance James Patterson have hit out at Treasurer Jim Chalmers over a “near $60 billion budget black hole”.

“The Treasurer has been caught attempting to conceal a near $60 billion budget black hole from the Australian people,” a joint statement said.

“Jim Chalmers claimed in his mid-year budget update in late December that his revised medium-term budget outlook is ‘broadly in line’ with what he took to the election. The truth is very different.

“On the basis of budget analysis by the Opposition, the projected deficit from 2029-30 through 2035-36 has blown out by close to $60 billion. The analysis was independently verified by highly respected independent budget economist Chris Richardson.

“Australians deserve answers. Where did this $60-billion budget black hole come from? Why weren’t voters told before the election? Why wasn’t it disclosed at the MYEFO press conference? And what else is the Treasurer hiding?”

The Australian dollar has climbed above 70 US cents for the first time since January 2023, with currency markets bracing for another RBA rate rise.

While borrowers are facing another mortgage rise, travellers are in for a cheaper holiday to the United States.

The trade weighted index, based on a basket of 19 currencies is at 63.9 - highest since July 2024 and a sign overseas holidays will be better value.

Today’s inflation data is expected to decide whether the Reserve Bank of Australia will be raising interest rates on February 3.

The expiry of the Federal Government’s $75 quarterly electricity rebates is forecast to push up headline inflation in December.

Economists at Australia’s major banks are expecting the consumer price index at the end of last year to have swelled from the 3.4 per cent pace in the year to November 30.

With volatile items like electricity, fruit and vegetables and holiday accommodation excluded, underlying inflation is predicted to also be well above the Reserve Bank of Australia’s 2-3 per cent target.

The Commonwealth Bank, NAB and Westpac say a 0.9 per cent increase in trimmed mean inflation, during the final three months of 2025, would almost certainly spark an RBA rate rise on Tuesday next week.

Data will be released at 11.30am AEDT.