Inflation set to level out in 2023 – but more interest rate pain likely
Mortgage holders should brace themselves for another hip pocket hit when the RBA meets next month
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Australian mortgage holders should prepare themselves for more pain this year, with experts predicting another interest rate rise when the RBA meets next month.
The Big Four banks expect the RBA to raise the cash rate by at least another 25 basis points, which would mark the ninth consecutive rise since May last year, and the highest peak since 1990 at 3.35 percent.
The Reserve Bank has been raising the cash rate in a bid to combat rising inflation, which currently sits at 7.8 percent, the highest level since 1990. The Australian Bureau of Statistics points to more expensive domestic holidays, international travel and higher energy prices as some of the key drivers.
While some have expressed concern that further interest rate rises could be enough to push Australia into a recession, head of research at CoreLogic, Eliza Owen, says there’s not too much cause for alarm just yet.
In the CoreLogic Property Pulse Report released this week, she points out that the RBA predicted inflation would peak at 8 percent this year and that the signs of a coming decline in the rate of inflation are already there.
“Underlying core inflation (the RBA’s preferred reading on inflation), which is measured by trimming excessively volatile components of CPI, actually fell in the quarter, from 1.9 percent in September to 1.7 percent,” she said in the report.
“Annual core inflation is still a long way from the 2 to 3 percent target range set by the RBA, at 6.9%. However, December marked the first fall in quarterly core inflation since March 2021, following eight consecutive interest rate rises from May 2022.”
The result, she said, is that inflation may have already peaked.
“Inflation across the combined OECD slowed to 1.8 percent in the September 2022 quarter, after peaking at 2.1 percent through June,” she said. “Forecasts from the OECD also suggest a fall in inflation through 2023 across most major economies, as global economic demand starts to slow.”
This includes Australia’s major trading partners such as China, Germany, Japan and the US.
In better news for those looking to renovate or build this year, the report also says that housing metrics indicate the rate of growth in new build costs is slowing.
“December CPI figures showed housing costs were still up a substantial 1.9% in the quarter, but this was down from a 3.2% lift in the three months to September,” Ms Owen said.
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Australia’s capital city housing markets have continued to record price growth, although higher interest rates and economic uncertainty are beginning to temper momentum.
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Capital city home prices have continued to rise in April despite higher interest rates and ongoing uncertainty about the outlook for inflation and the global economy.
Growth rates, however, have eased, reflecting the usual subduing effect of the lengthy April holiday month.
The national capital city median house price increased marginally by 0.2% over the April quarter to $1,297,798 compared to the March quarter, according to the latest data from My Housing Market.
Annual national house prices are, however, 10.2% higher and have now increased for 14 consecutive months.
Most capitals reported house price increases over the month, with Brisbane and Perth the top performers, each higher by 1.3%, followed by Hobart and Darwin, both up 1.2%, Adelaide up 0.2%, with Sydney steady. Melbourne prices, however, fell 0.7%, while Canberra prices fell 1.7%.
Most also report strong annual house price growth in excess of 10%, with Perth, Darwin, Brisbane, and Adelaide clearly the highest, up by 25.7%, 21.6%, 20.0% and 14.2% respectively.
National unit prices were also higher in the April quarter than in the March quarter, rising by 0.5% to $728,459, and have now increased by 8.2% compared to the April quarter 2025 result.
Brisbane was the top monthly performer in April, with unit prices rising by 1.7%, followed by Perth up 1.0%, Melbourne and Canberra each up 0.9%, Adelaide up 0.6%, and Hobart up 0.1%. Sydney unit prices were steady over the month; however, Darwin unit prices were down 0.8%.
Similar to houses, Perth, Brisbane, Adelaide and Darwin continue to record the highest annual unit price growth to April 2026, at 30.1%, 27.8%, 12.9% and 11.8%, respectively.
Analysis
Capital city housing markets have generally reported higher home prices in April, although growth rates have eased compared to March.
Easing housing markets reflect the usual dampening effects of the lengthy April holiday month, although higher interest rates and increased uncertainty about the economic outlook have weighed on affordability and confidence.
Robust annual home price growth, however, continues for most capitals with Perth, Darwin, Brisbane, and Adelaide still reporting boomtime results.
Although 2026 is still set to see home price growth generally in most capitals, the rising spectre of further interest rate increases and elevated uncertainty over the outlook for inflation and the economy will continue to dampen affordability and confidence.
Brisbane, Adelaide, Perth and Darwin, however, are again set to lead capital city outcomes for both houses and units, but are unlikely to match the extraordinary 2025 results.
Brisbane, Perth and Adelaide continue to record higher median house prices than Melbourne, with Perth now closing in fast on Brisbane and set to lead all but Sydney.
Underlying drivers will continue to support overall housing market activity, although the outlook for RBA interest rates is more problematic, with inflation set to accelerate and economic activity to decline as a consequence of the recent sharp increase in oil prices.
The economy, however, remains strong, with a steady, still-low jobless rate, falling unemployment, continued robust job growth, and a high participation rate.
Housing demand continues to outpace a low and diminishing housing supply, and although high post-COVID migration levels have recently eased, numbers remain strong and will add to chronic housing undersupply, supporting high rents and low vacancy rates generally in capital city rental markets.
Following a period of easing in rental growth, the latest data continue to show extraordinarily low home rental vacancy rates and clear signs that rents are on the rise again.
High rents and higher prices continue to provide clear incentives for first-home buyers and investors chasing solid investment returns.
Ongoing government initiatives to support first-home buyers will increase demand and place further upward pressure on prices.
Capital city housing markets generally recorded higher house and unit prices over 2023, 2024 and surged over 2025, fuelled by rising buyer and seller confidence through sharp cuts to interest rates.
Although 2026 is again likely to see higher home prices, significant uncertainty has recently emerged about the near-term outlook for already-high interest rates and economic activity, which will generally dampen buyer and seller confidence.
Early signs are emerging in the recent weakening of home auction market clearance rates, particularly in Sydney and Melbourne.
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