Australia Inflation Returns at Worst Time, RBA Holds Rates
Synopsis
Australia’s economy is coming under fresh pressure as inflation spikes at an inopportune moment. Economists are warning that households won’t see 2026 interest rate cuts even as unemployment ticks higher. Rising electricity bills, childcare costs and council charges have sent prices soaring, stumping many experts. Reserve Bank The central bank is likely to keep rates on hold despite the softer job market, balancing inflation with an easing labour market. Big banks are split on what will happen next, continuing to impose the spectre of uncertainty over borrowers and businesses.
Australia’s economy is being squeezed once again, with families already under pressure when an Australian inflation resurgence strikes. Prices are rebounding, job creation is softening, and borrowers shouldn’t expect relief any time soon. For both business leaders and households, the mix is painful. Spending came in unexpectedly strong even as key costs jumped. Economists caution that this leaves little room to move in 2026 for policymakers.
Australia inflation rebound leaves policymakers in a bind
Fresh forecasts from Oxford Economics Australia say the economy is in a tough spot. Inflation has risen back above target while the growth outlook is lopsided. Harry Murphy Cruise says rate cuts are out this year.
He points to increased electricity bills, post-subsidy, and rising tobacco prices and childcare fees, and council charges. These are not costs that rates can readily manage. The result is pressure on the cost of living when many households are already stretching to make ends meet.
Rates to remain on hold as the jobs market weakens
Australia’s central bank is forecast to hold rates through 2026. It's all too human a task to keep a lid on inflation without sacrificing full employment. That balance is a fragile one at the moment.
Oxford Economics predicts that unemployment will increase from 4.3 per cent to about 4.6 per cent. That lift alone could cool inflation without higher rates. Full-time jobs took a sharp dive in November, according to data from the Australian Bureau of Statistics, while part-time work grew.
Mixed bag of opinions across banks on the RBA rate trajectory
The largest banks in Australia don’t see eye to eye on what comes next. Commonwealth Bank and National Australia Bank are forecasting that in February, rates will rise. Westpac and ANZ believe rates will remain on hold for the year. A 0.25% increase would translate into an extra $90 a month for someone paying off a typical $600,000 mortgage. The RBA’s next gathering is in February, with its decision due on Feb. 3.
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