Say good night to rate cuts and hello to rate hikes!

The latest low unemployment figures have dashed any expectations that the RBA would remain inactive and inactive through 2026. Instead, sudden interest rate increases are on the agenda.

In the classic good news is bad news scenario, the surprising strength in the Australian labor market (unemployment falling to 4.1% in December) is likely to contribute to Australia’s pessimistic outlook.

Gloom is in fashion these days. Australians were already resigned to higher inflation. Inflation expectations have risen considerably, as seen in the next chart.