The Australian sharemarket pared early gains to finish modestly lower on Wednesday after stronger-than-expected inflation data fuelled expectations that the Reserve Bank of Australia will raise interest rates at its next meeting.
The S&P/ASX 200 index fell just 7.7 points or 0.1% to 8,933.9, after earlier climbing as much as 0.4% to 8,978.5.
The shift in sentiment followed data showing the consumer price index rose 3.8% in the 12 months to December, above market forecasts of 3.6%.
ANZ analyst Adam Boyton noted: "With trimmed mean inflation in Q4 of 3.35% y/y (to two decimal places) above the RBA’s forecast from the November Statement on Monetary Policy of 3.2% and the unemployment rate ending 2025 at 4.1%, we now expect the RBA to raise interest rates by 25bp on 3 February.
"In the wake of an interest rate increase we would anticipate material softening in leading indicators of activity, such as auction clearance rates, consumer sentiment and business conditions/confidence.
"That will weaken the activity case for further rate rises beyond the one we expect. And while price pressures lifted through the second half of 2025, most top-down inflation indicators continue to suggest that a moderation of inflation back into the target range is likely over 2026 and into 2027.
"Accordingly, we view this as a single ‘insurance’ tightening, not the start of a series of rate hikes."
The interest rate-sensitive Information Technology sector led declines. Xero lost 1.9%, WiseTech Global shed 3.8%, TechnologyOne lost 2.4% and NextDC traded 2.7% lower.
Energy stocks outperformed as oil prices rose about 2% overnight after a winter storm in the United States disrupted crude production and refinery operations.
Woodside advanced 2.7% after reporting record production in 2025, beating guidance as strong asset reliability offset weaker pricing and softer quarterly output. Santos gained 2.6%.
Materials shares also firmed as gold extended its record rally overnight. Northern Star added 3.3%, Evolution Mining lifted 4% and Newmont traded 1.6% higher.
Major miners BHP and Rio Tinto lifted 1.7% and 2.4%, respectively, while Fortescue Metals slipped 1.1%.
Boss Energy shares jumped 10% after the uranium producer released a strong quarterly activities report for the period ending 31 December 2025. Driven by higher flow from new wellfields, the company’s flagship Honeymoon operation delivered record drummed production of 456 klbs U3O8 and ion exchange production of 406 klbs for the quarter, up 18% and 8% respectively from the previous quarter.
Management confirmed the company remains on track to meet its FY26 production guidance of 1.6 Mlbs.
Elsewhere, Coronado Global Resources fell 5.5% despite delivering full-year 2025 results within guidance, supported by higher production, lower costs and the completion of major capital projects.
DroneShield also dropped 5.5% after chief executive Oleg Vornik said his decision to sell $50 million of shares last year was partly to cover a tax bill and to secure his financial future.
On the bond markets, Australian government yields declined, with 10-year and 2-year rates falling 1.2% and 1% to 4.808% and 4.185%, respectively.
