Economists warn of potential hike after inflation increase

EY chief economist Cherelle Murphy said there was no chance the Reserve Bank would cut interest rates at its last meeting of the year on December 8-9.

Loading

“Given that the next board meeting will not be until February, a rate hike may even be considered,” he said.

“If the reacceleration in inflation continues in the coming months – taking into account that monthly figures may fluctuate somewhat – interest rate hikes are more likely than cuts in 2026.”

Deloitte Access Economics partner Stephen Smith said the Reserve Bank was now in an “enviable position” to support the economy and reduce inflation.

“This difficult balancing act is a central banker’s nightmare,” he said.

Chalmers acknowledged the annual figure was higher than he wanted, but said that was partly due to temporary factors such as the end of state energy rebates.

Chalmers said electricity rebates, including the Commonwealth energy bill rebate, which expires at the end of the year, were an important way to help Australians with cost-of-living pressures, but also tempered expectations that they would be extended until 2026.

Pressed on the mid-year budget update due to be published early next month, Chalmers said it would not be a “mini-budget” but acknowledged there would be some spending cuts.

“There will be some savings in the mid-year budget update. But the real game is May,” he said.

It was estimated that the 2025-26 budget, which had a deficit of 10 billion dollars in the last fiscal year, would have a deficit of 42.1 billion dollars in March.

Shadow treasurer Ted O’Brien described the 3.8 per cent rate as extraordinary and said it would hit the country’s army of mortgage holders.

“With just 29 days until Christmas, this is the worst possible news for struggling mortgage holders who can now kiss goodbye to any rate cut, or even any rate cut at all,” he said.

The Central Bank has warned that the economy’s growth rate is falling due to a sharp slowdown in productivity, without increasing inflationary pressures. This was a major topic of discussion at a three-day economic roundtable in August chaired by the treasurer.

Chalmers said he would meet state and territory treasurers on Friday to discuss federation reform and the federal government’s national competition policy agenda.

Loading

Separate data from the bureau shows the economy is becoming more reliant on the private sector after years of surviving on government spending.

Private residential construction work increased 4 percent in the September quarter, while non-residential projects increased 6.6 percent.

While overall public sector work fell by 0.7 percent, largely due to the end of some major state-based infrastructure works, public housing work increased by 17.9 percent to 46.1 percent in the last 12 months.

Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up for our weekly Inside Politics newsletter.