Few topics get Aussies talking—and worrying—like inflation. Whether you’re watching grocery prices climb, renegotiating your mortgage, or planning a big purchase, inflation impacts your daily life. In 2025, Australia’s inflation story is evolving, with new policies, global shifts, and local realities all shaping what you’ll pay and how far your dollar goes. Here’s what you need to know, and how to come out ahead.

Inflation in 2025: Where Are We Now?

After a turbulent few years, inflation is finally showing signs of moderating, but it remains above the Reserve Bank of Australia’s (RBA) 2–3% target band. As of May 2025, Australia’s annual inflation rate is hovering around 3.4%, down from the 2022–2023 peaks but still a concern for households. Key drivers include:

Energy costs: Despite government rebates, electricity and gas prices remain elevated due to ongoing global supply chain disruptions and the energy transition.
Food prices: Weather extremes and global commodity volatility have kept supermarket bills high, particularly for fresh produce and dairy.
Housing: While house price growth has cooled, higher interest rates and rents continue to pressure budgets.

Globally, inflation is also easing in major economies like the US and EU, but ongoing geopolitical tensions and supply issues mean Australia isn’t out of the woods yet.

Policy Shifts: What’s the Government and RBA Doing?

The federal government’s 2025 budget put cost-of-living relief front and centre. Key measures include:

Stage 3 tax cuts for middle and low-income earners, providing modest relief from bracket creep.
Targeted energy bill rebates for households and small businesses, extended through June 2026.
Increased rent assistance for eligible welfare recipients, attempting to offset rising rents.

Meanwhile, the RBA has kept the cash rate steady at 4.35% since late 2024, balancing inflation control with concerns over economic growth and mortgage stress. Market watchers expect rates to remain on hold until at least late 2025, with cuts possible only if inflation continues to trend down decisively.

For investors, the RBA’s stance means deposit rates remain attractive, but variable-rate mortgage holders are still feeling the pinch.

How Inflation Impacts Your Everyday Finances

Inflation isn’t just an economic headline—it’s something you feel at the checkout and on your bank statement. In 2025, the pinch points include:

Groceries: Even as some staples stabilise, overall food prices are up around 5% year-on-year, driven by both domestic and global factors.
Utilities: Energy rebates are helping, but the underlying trend is upward, making energy efficiency and solar investments more attractive.
Housing: Rents in major cities like Sydney and Brisbane have surged over 10% in two years, while mortgage repayments remain high.

On the flip side, wage growth has picked up, with national averages rising 4.1%—but for many, it’s still not enough to fully offset cost increases.

Smart financial moves in an inflationary environment include:

Reviewing fixed vs variable mortgage rates as rate cuts loom on the horizon
Investing in inflation-resistant assets like shares, property, or infrastructure funds
Locking in utility and insurance deals where possible
Taking advantage of government rebates and support schemes

What’s Next? Looking Ahead to Late 2025 and Beyond

Most economists expect inflation to gradually return to the RBA’s 2–3% target by late 2025 or early 2026, barring major global shocks. The government’s focus on supply-side reforms—such as boosting housing supply and investing in renewable energy—aims to address some of the root causes, but these are long-term plays.

For everyday Australians, the key is to remain proactive: keep an eye on your spending, hunt for deals, and review your financial settings regularly. Inflation may be easing, but the era of ultra-cheap money and flat prices is behind us for now.