The latest GDP data shows the Reserve Bank of Australia “completely misread the economy” when it was delivering rate cuts last year, a leading economist has declared.

Australia’s economy grew 2.6 per cent in the year to December and lifted 0.8 per cent in the final three months of 2025.

Productivity was flat in the quarter and lifted one per cent throughout the year, sparking concerns the economy is running beyond its capacity.

EQ Economics’ managing director Warren Hogan said the recent figures, along with inflation rising 3.8 per cent in the year to December, showed the RBA was wrong to cut rates last year.

“Today is the last piece of information that says not only did the RBA completely misread the economy when they last cut rates in August, but the economy is now … running away from them,” Mr Hogan told Business Now.

“At the centre of this … the private sector recovery has come through, which is what we all wanted and the government and everyone wanted, but the governments of Australia are not pulling back.”

He pointed to previous comments by the RBA that Australia only had capacity for growth of about two per cent before inflation starts to surge.

“With a very low speed limit compared to the past, we’re getting inflation,” Mr Hogan said.

“So we need those governments with their budgets this year to start pulling back or else the RBA is going to have to do a lot over the course of the next year or two because this economy is in recovery now.”

The RBA was forced to lift the cash rate last month when inflation jumped in the back half of 2025.

This followed the central bank delivering three cuts between February and August.

All eyes are on the next RBA meeting where money markets anticipate the cash rate will remain on hold, however there is a 34 per cent chance of a hike.

Mr Hogan said the central bank’s next hike will have to come at this month’s meeting, and that another hike in May could be necessary to tackle inflation pressures from oil shortages related to the conflict in the Middle East and government spending.

“The best hope we’ve got of limiting rate hikes to about another two is if the governments pull back on their spending,” he said.

“If they don’t, then I fear that the RBA is going to be going up a lot more and above five per cent over the course of the next year or so.

“This oil price shock is going to take inflation to five per cent if it’s sustained for the next month or so.”

AMP’s chief economist Shane Oliver previously warned disruptions to the supply of oil could mean Australians pay an extra 40 cents per litre at the bowser.

“A 40 cents a litre rise in petrol prices would add about 0.8 per cent to CPI inflation, but it would also impart a dampening impact on growth,” Mr Oliver said.

“This is because it would add around $14 a week to the household petrol bill leading to a cut back in spending elsewhere in the economy. In other words, it will act as a tax on households.”