Australia’s economic momentum builds despite inflation jitters

As 2025 comes to an end, unexpected positive news about the economy began to arrive.

It is making the necessary preparations for an even stronger economy in 2026; This will be welcomed by the Government, which is working to further restore fiscal settings and secure better economic conditions for the general population and the business sector. A sustained increase in business confidence, investment and hiring is vital to offset some of the stagnation caused by slow growth in public sector demand.

However, the saying “beauty is in the eye of the beholder” also applies to views on economic conditions.

Some “love” rising house prices and low wage increases, others the opposite. Their preferences are often based on preconceived biases about their access to housing or the availability of affordable labor for businesses to engage in efforts to achieve commercial growth and higher profits.

The details of economics outlined below offer a clear perspective without fear or flattery.

We are still some distance away from the former Prime Minister Paul Keating‘s evaluation about 30 years ago “These are a beautiful series of numbers.” We get interesting news about economic conditions while covering a range of strong economic indicators.

More importantly, the economy is growing at a reasonable pace. GDP is increasing 2.1% in the year to September quarter is the strongest growth in the last two years and significantly stronger than the cyclically low growth rate of 0.8% in the year to June quarter 2024.

The composition of economic conditions is more positive in this growth performance. Business investment is now strong. New housing construction activities, which are the main problem in combating the housing shortage, are increasing rapidly.

Productivity growth is also increasing; It rose 0.8% last year, driven by particularly strong growth in non-mining productivity.

unemployment rate It remains below 4.5%, a rate that has been low for only a few years since the mid-1970s. In other words, low unemployment remains a key feature of current strength in the economy.

Household wealth is reaching record levels. To abstract for a moment the issues of fairness and equity in housing affordability (that is, for another article), the explosion in house prices plus the endless accumulation of retirement savings in personal retirement accounts has seen household wealth reach record levels.

The net result, calculated by subtracting household debt from total household assets, is now more than nine times annual household disposable income (graph in chart). page 10), which is materially higher than just six times the income of ten years ago and five times the income of twenty years ago.

At the same time wage increase It remains solid, with the wage price index rising 3.4% last year and wages for all workers rising almost 7%. Rising wages are critical for the household sector; keeping up with or even exceeding the general inflation rate. There is an increase in the purchasing power of wage earners and salaried workers, which is a welcome change from the recent past.

There is a problem potentially looming in the economy towards the end of the year.

Inflation.

While the adjusted inflation rate rose to 3.3% by October, above the upper end of the Central Bank’s 2-3% target range, there are serious doubts about the timidity of the latest results.

Much of the rise in inflation over the past few months has been driven by so-called “administered” prices. price to consumers Items that are substantially or entirely affected by government charges. These include items such as the end of electricity subsidies, private consumption increases on tobacco and alcohol, public transport fares and local council tariffs and charges. Changes in the prices of these items, especially in the last few quarters, are in no way affected by changes in official interest rates.

That’s why some more alert economists largely dismiss or downplay much of the latest news about inflation. In other words, some of these price increases will be erased from inflation data in the coming months.

Although the economy is still strong and some way off from being in good shape, 2026 will begin with more positive economic indicators than a year ago.

Stephen Koukoulas is one of Australia’s most respected economists, the former chief economist of Citibank and senior economic advisor to the Australian Prime Minister. You can follow Stephen on Twitter/X @TheKouk.

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