Disinflation in Australia 2025: Effects on Mortgages, Investments & Cost of Living

Disinflation is a buzzword in Australian finance circles this year. As 2025 unfolds, slowing inflation—not outright deflation—has become the dominant economic story, shifting how households, investors, and policymakers approach money. But what exactly is disinflation, and how does it impact your bottom line?

What Is Disinflation and Why Is It Happening in 2025?

Disinflation refers to a decrease in the rate of inflation—prices are still rising, but at a slower pace than before. It’s not the same as deflation, where prices actually fall. In 2025, Australia is experiencing disinflation as the Consumer Price Index (CPI) annual growth drops from the highs of the early 2020s, settling around 2.8% in the first quarter, compared to over 7% in 2022. Several factors are driving this trend:

• Interest Rate Hikes: The Reserve Bank of Australia (RBA) maintained elevated cash rates through 2024, cooling consumer demand and slowing price increases.

• Global Supply Chain Recovery: Post-pandemic logistics have improved, easing the costs of imported goods and raw materials.

• Government Policy: The 2024-25 Federal Budget focused on targeted cost-of-living relief without fueling demand, helping to moderate inflation expectations.

This gradual slowdown is intentional. The RBA aims to bring inflation within its 2–3% target band, avoiding both runaway prices and the risks of a shrinking economy.

How Disinflation Affects Australian Households

Disinflation’s most immediate impact is on your wallet, but the effects are nuanced:

• Cost of Living: While grocery and energy bills are still edging up, the rate of increase has slowed. For example, supermarket prices rose just 2% over the past year, down from 5% in 2023. This relief is welcome, though many households are still adjusting to the higher base prices set during the inflation surge.

• Wages and Employment: Wage growth has moderated, with ABS data showing a 3.2% annual rise in early 2025. This is positive for stability but may not feel like a win if your pay increases lag behind living costs.

• Mortgage Holders: The RBA has signalled it will keep rates on hold, rather than cut, as long as inflation remains sticky. Fixed-rate borrowers may find refinancing options more attractive as banks compete for business, but variable-rate holders are unlikely to see immediate relief.

In essence, disinflation means less pain at the checkout, but it’s not a return to the low-price world of the 2010s.

Investment and Policy Implications

Disinflation also changes the game for investors and shapes government policy:

• Stock Market: Historically, equity markets favour stable, moderate inflation. In 2025, the ASX 200 has shown resilience as inflation expectations cool, with defensive sectors like healthcare and consumer staples outperforming the broader index.

• Property Market: Slower inflation usually means steadier interest rates. While this can support property prices, subdued wage growth and tighter lending standards may cap gains, especially in overheated markets like Sydney and Melbourne.

• Superannuation: Lower inflation is generally good news for retirees, as their savings stretch further. However, those relying on interest income might find term deposit rates plateauing rather than climbing higher.

• Policy Moves: With disinflation taking hold, policymakers can shift focus from emergency measures to longer-term productivity and housing affordability reforms. The 2025 Budget reflects this, with less emphasis on direct cash handouts and more investment in infrastructure and skills.

Investors should keep an eye on the RBA’s language: any hint of rate cuts could spark renewed activity in both equities and property.

What’s Next for Australians?

The big question is whether disinflation will stick, or if external shocks—think commodity prices or global conflict—could reignite price pressures. For now, the consensus among economists is that Australia is entering a period of greater price stability, which should help rebuild consumer confidence and allow for more predictable budgeting.

In practical terms, now is a good time to review your household budget, consider locking in competitive home loan rates, and rebalance your investment portfolio for a world where inflation is less of a wild card.