‘Horror story’ scenario for Australian households under mounting rate rises as consumer spending remains resilient

Australians have been warned of “horror story” scenario it may face as rate rises plague households while others continue to spend large.

The nation was delivered its fifth rate rise for 2026 just last week, bringing the cash rate to its highest point since the GFC.

It comes as inflation rose 4.3 per cent over the past year and household spending remains resilient, growing 0.7 per cent in the September quarter.

EQ Economics managing director Warren Hogan warned that spending growth keeping at this pace while inflation is elevated could spell disaster for Australian households.

“My concern is that this resilience continues,” Mr Hogan told News24 Business Now on Monday.

“(If) we don’t see the job losses, people do keep spending and inflation keeps going (then) wages might start picking up.

“My horror story, and what snaps us as an economy into reality, is actually a boom-bust cycle.

“(That means) rates going up a lot and then us going into a recession in 2028.”

He warned the private sector could fall into a recession while the government keeps spending to technically keep the whole economy out of a recession.

“We could see the economy just go into a private sector recession,” Mr Hogan said.

“The government’s still spending a lot (which will) probably keep the overall economy just ticking over.

“I don’t know which pathway we’ll take. We’re in uncharted territory. We’re in a new economy (and) because of those demographic shifts the thing that worries me in the short term is that boom-bust cycle.”

After hiking the cash rate last week, the RBA’s governor Michele Bullock said the central bank does not forecast a recession, but noted it may feel like one.

“Our central forecasts do not see us going into recession, but it does see growth slowing quite markedly,” Ms Bullock said.

“It shows that consumption is quite sluggish and I think that is going to make people feel like it’s a recession because they feel poorer, their spending can’t grow very quickly because their incomes aren’t growing very quickly.

“This is a manifestation of the lack of productivity growth and the fact that we’ve had this massive supply shock imposed upon us and we’re all poorer.

“We don’t want to push the economy into recession. We do have a dual mandate, and although, at the moment, we are focusing on inflation … we haven’t lost sight of the fact that we want to try and maintain, if we can, the gains in the labour market.”