Home Loan Repayments Excluded from Official Inflation Calculations: Here’s Why

Rowan Ashford

Published: February 6, 2026 4:28 PM ET

Home ownership in Australia carries a heavy financial burden, particularly as interest rates rise. The recent increase in rates has pushed monthly repayments on an average $600,000 mortgage up by approximately $90, according to financial services comparison website Canstar.

Home Loan Repayments Excluded from Official Inflation Calculations: Here’s Why

The exclusion of mortgage costs from Australia’s headline inflation measurement raises questions. This practice stems from a decision made by the Australian Bureau of Statistics (ABS) in 1997, following a request from the Reserve Bank of Australia (RBA).

The Shift in Indexing

In 1997, the ABS removed mortgage repayments from the Consumer Price Index (CPI) during a regular review. This shift transitioned from an “outlays” model to an “acquisitions” model. The RBA argued that including mortgage payments inflated wage demands. According to the RBA, mortgage costs distorts other economic indicators, especially during times of fluctuating interest rates.

Economic Implications

In 1995, inflation peaked at approximately 5%—it would have been closer to 3.5% without interest payments.
The RBA’s assessment indicates that long-term outcomes are unaffected by this exclusion.
Removing mortgage payments helps the RBA manage expectations and target inflation within a goal of 2 to 3%.

Higher interest rates lead to financial pain for mortgage holders, compelling them to reduce spending. As noted in an October 2023 speech by RBA Assistant Governor Christopher Kent, this reduction curbs inflation by slowing demand for goods and services.

Current Financial Stress on Borrowers

Many Australians face significant financial stress. Payments on an average new home loan consume about 45% of median income, revealing the disproportionate impact of housing costs. As of November, approximately 1,187,000 mortgage holders are experiencing mortgage stress. Experts predict that due to recent rate hikes, an additional 41,000 borrowers are likely to join this group.

Calls to the National Debt Helpline reached a 10% increase in inquiries over the past year, reflecting the challenges faced by borrowers. Chief Executive of Financial Counsellors Australia, Domenique Meyrick, pointed out that even employed individuals struggle to meet mortgage repayments due to rising costs.

Conclusion

The decision to exclude home loan repayments from official inflation figures highlights a complex relationship between mortgage rates and economic indicators. As economic conditions evolve, the financial implications for homeowners will remain a critical aspect of Australia’s economic landscape.