Australia’s latest inflation and spending figures have intensified concerns that the Reserve Bank of Australia (RBA) could be forced into further tightening, with Global X ETFs senior investment strategist Marc Jocum warning economic uncertainty itself was becoming increasingly costly.

The warning follows a sharp reassessment of the interest rate outlook after July inflation surprised to the upside. NAB and Judo Bank have put a September increase in play, while ANZ and Commonwealth Bank have shifted their calls towards a November hike. Westpac has maintained that a November increase remains a risk rather than its base case.

Against that backdrop, Jocum argued Australia was increasingly becoming a “tale of two economies and an ‘I don’t know’ crisis”, with financial markets showing resilience even as households confronted uncertainty over interest rates, inflation, housing and the broader economy.

Australia’s sharemarket has been hovering near record highs, while around two-thirds of companies were above their 200-day moving average, the highest proportion in almost a year. Healthcare and materials have led during reporting season, while financials have lagged.

“The sharemarket doesn’t seem to care about the confusion below the surface. Earnings are delivering in some pockets and investors are voting with their wallets,” Jocum said.

The apparent strength in markets contrasts with an increasingly complicated inflation picture. Annual inflation eased to 3.5 per cent in July but was hotter than expected, while underlying inflation remained at 3.6 per cent.

Fuel prices jumped 7.5 per cent and rents increased 0.4 per cent during the month, although Jocum said the more concerning development was the breadth of price pressures, with market services and consumer durables also stronger than expected.

“That leaves the RBA with some serious scar tissue,” he said. “Having cut rates by 75bp in 2025 only to see inflation reaccelerate, the Bank will be wary of making the same mistake twice by declaring victory before the battle is won.”

The July result has already prompted several economists to rethink their rate forecasts. ANZ head of Australian economics Adam Boyton and senior rates strategist Jack Chambers now expect a 25 basis point increase in November, taking the cash rate to 4.60 per cent.

They said the breadth of July’s inflation surprise could concern the RBA, particularly because some of the largest surprises occurred in discretionary categories.

Boyton and Chambers have stopped short of forecasting a September move, pointing to potential residual seasonality in the monthly figures and the RBA’s preference for quarterly inflation data.

They also noted the central bank has tended to move rates at meetings accompanied by a Statement on Monetary Policy.

Jocum said markets were pricing around a 40 per cent probability of a September hike, leaving the RBA to determine whether the monthly inflation data warranted an immediate response or whether it should wait for the quarterly inflation print.

“Inflation risks were merely skewed to the upside according to the RBA’s recent rhetoric, but this CPI print has started to crystallise those fears. The RBA may be reluctant to roll the dice again and could find itself increasingly forced to act,” he said.

Complicating that decision further has been evidence that Australian consumers are continuing to spend despite cost-of-living pressures.

Household spending increased 1.1 per cent in July and was 7 per cent higher over the year, according to Jocum, marking the strongest annual growth since June 2023. Discretionary spending increased 7.8 per cent, while recreation and culture spending rose almost 10 per cent over the year, its strongest growth since March 2023.

“The consumer may be complaining about the cost-of-living squeeze, but their wallets are telling a different story,” Jocum said. “Australians might be telling pollsters they’re doing it tough, but their credit cards clearly haven’t got the memo.”

While resilient spending could add to the RBA’s concerns about inflation persistence, Jocum argued higher interest rates could not address some of the more fundamental weaknesses facing the Australian economy.

He pointed to falling real GDP per capita during the Albanese government’s term, arguing population growth had allowed the economy to become larger without delivering corresponding improvements in economic outcomes per person.

“We’re effectively putting more people into the factory without making the factory more productive, and that is an economic problem interest rates simply cannot solve,” Jocum said.

Housing has added another layer of uncertainty, with Jocum pointing to falling property prices, expectations of further weakness and continued rent increases.

He also raised the recent collapse of Bathla as a potential source of concern around private credit and already-constrained housing supply, although his commentary did not provide further detail on the potential scale of any broader consequences.

The combination has left households confronting competing signals about whether to buy or sell property, fix or float their mortgage, and spend or save, while uncertainty also remains around future government policy and the direction of interest rates.

“And that is the problem: Australians increasingly don’t know what to do,” Jocum said.

Investment behaviour has nevertheless provided one indication of where households are finding greater conviction, with Jocum pointing to record amounts of money flowing into exchange-traded funds as Australians increasingly look beyond their traditional focus on property.

“Record amounts of money are flowing into ETFs, suggesting Australians may not know where the economy is heading, but they increasingly know how they want to invest,” he said.

Jocum ultimately framed the challenge as one of credibility for both monetary and fiscal policymakers, arguing greater certainty was needed as households navigated shifting economic conditions.

“Australia needs clear, credible pathways because the ultimate test facing both RBA Governor Michele Bullock and Prime Minister Anthony Albanese is rebuilding credibility. The sharemarket can climb a wall of worry, but households need confidence that the ground beneath them won’t keep shifting.”

“Confusion is an economic tax, and Australia cannot afford to keep paying it.”