Expectations of a rate hike are “premature”, according to a top economist who believes the current inflation rate is “not a problem” for Australia’s economy.

AMP’s deputy chief economist Diana Mousina watered down expectations of a rate rise as early as September 2026 after inflation soared 3.8 per cent over the year to October.

Trimmed mean inflation – the middle 70 per cent of price changes core to the RBA’s decision – was lower at 3.3 per cent over the 12-month period.

Ms Mousina said an interest rate hike would risk slowing the economy as a myriad of uncertainties plague the nation’s economy.

“Talk of RBA rate hikes is premature,” Ms Mousina said in a note.

“Inflation at just over three per cent is not a problem for the economy, there are more downside than upside risks to the economy, job ads are flat-lining, rather than accelerating, public sector spending will slow and private sector growth is not-broad based.”

The Reserve Bank of Australia has slashed rates three times since the beginning of the year after inflation dropped from its post-pandemic surge.

Inflation fell within the RBA’s 2-3 per cent target band between the beginning and middle of 2025, but rose again as energy rebates rolled off and housing costs lifted.

Ms Mousina said inflation above three per cent does not mean the central bank will be in a rush to raise rates unless prices continue to soar.

“The RBA started inflation targeting in 1993. Since then, headline inflation has been in the 2-3 per cent target 35 per cent of the time and trimmed mean has been in target 56% of the time,” she said.

“The point of this is to tell you that swings outside of the target band are actually very normal.”

She noted concerns about inflation could be tempered by consumers veering away from goods and services that are more susceptible to price rises, such as foods like olive oil and chocolate which rose in cost due to global shortages.

Another factor was the improvement in products, such as laptops or smartphones, which means the difference between a good someone purchased 15 years ago and in 2025 is worth much more than the price difference they have paid.

“The statistics agencies try to account for these quality improvements over time which is why we see communication prices go down over time,” Ms Mousina said.

“But quality improvements can be hard to quantify, especially in the short-term which means that inflation may be overstated.”

Other factors weighing on a potential rate hike include the unemployment rate, which remains low at about 4.3 per cent, while the pickup in economic growth in the private sector is concentrated in data centre business investment rather than across the whole economy.

“It’s clear that a rate cut will not be part of the policy debate in the near-term,” Ms Mousina said.

“But there are still more risks for a rate cut than a rate hike in 2026.

“The most likely scenario is that interest rates are on hold for an extended period from here.”

While Ms Mousina cautioned against a rate hike, EQ Economics’ Warren Hogan said the RBA could raise rates early next year after inflation jumped in October.

“I don’t think they’re gonna hike rates in December,” he said.

“It’s just too hard for them. It’s too much noise (and) too much backlash in the community.

“But if they’re in a position where they might have to in February, they’ve got to start laying the groundwork for that (and) start letting people know that this could be coming.”

The cash rate has remained on hold at 3.6 per cent since the RBA last cut rates in August.