Is Australia about to crash through its economic ‘speed limit’?

Two roads diverged…

As Hauser articulated in his speech, there are two alternate ways of looking at the current economic picture (and one future scenario). 

• On one view of the economy, monetary policy is still restrictive, the economy is growing below potential, the labour market is broadly back in balance (and softening), wages growth is easing, and the spike in inflation is largely driven by temporary factors. 

In this world, we should see inflation ease back again over coming months, and the annual rate fall back towards the middle of the target band through 2026 and 2027.  Unemployment could rise a little further. This would likely see at least one rate cut in 2026.

• On another view of the economy, monetary policy is no longer restrictive, financial conditions are loosening, demand is lifting strongly and starting to hit supply constraints, real unit labour costs are still too high, and the inflation surprise was more persistent, owing to demand outpacing supply.

In this world, inflation should continue to run a bit hot into early 2026, the labour market will stabilise and again start to tighten, and, in time, this will feed into broader wage pressures.  This would bring rate hikes firmly onto the table in 2026.