{"id":170681,"date":"2025-12-06T07:19:10","date_gmt":"2025-12-06T07:19:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/170681\/"},"modified":"2025-12-06T07:19:10","modified_gmt":"2025-12-06T07:19:10","slug":"interest-rate-hikes-increasingly-likely-in-2026-but-a-major-event-would-produce-the-opposite-result","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/170681\/","title":{"rendered":"Interest rate hikes increasingly likely in 2026 but a major event would produce the opposite result"},"content":{"rendered":"

An interest rate hike on Tuesday is a practical impossibility.<\/p>\n

But if a growing number of forecasters are proved correct, it’s a moot point, because one or more are on the way.<\/p>\n

The reason is that Australia’s inflation problem has not gone away and, by some measurements, is worsening.<\/p>\n

Two official economic reports this week \u2014 the national accounts and the monthly household spending indicator \u2014 highlighted the key problem facing policymakers: too much money is chasing too few goods.<\/p>\n

Up to now, nobody’s figured out how to solve this problem.<\/p>\n

Until it’s solved, millions of mortgage borrowers will continue to pay the price.<\/p>\n

A story RBA may not want to hear<\/p>\n

Inflation fighters copped a one-two punch this week and both hits stung.<\/p>\n

The national accounts for the September quarter<\/a>, released by the Australian Bureau of Statistics (ABS), showed the economy on a reasonably solid footing.<\/p>\n

Australia’s gross domestic product grew by 0.4 per cent in the September quarter, following growth of 0.7 per cent in the June quarter.<\/p>\n

GDP’s sting in the tail<\/a><\/p>\n

Australia’s latest economic growth numbers show an economy in generally rude health, but that might result in a rude shock for mortgage borrowers earlier rather than later in 2026.<\/p>\n

Essential household spending was up 1 per cent, driven by payments for banking and superannuation services, electricity and health.<\/p>\n

Public investment grew by 3 per cent in the September quarter, rebounding from a 3.5 per cent fall in the June quarter.<\/p>\n

A day later, the second punch came.<\/p>\n

The ABS media release headline seemingly toying with the Reserve Bank: “Strong growth in goods lifts household spending”<\/a>.<\/p>\n

“Discretionary spending surged this month led by goods as promotional events saw households spend more on clothing, footwear, furnishings and electronics following months of weaker spending in these categories,” ABS head of business statistics Tom Lay said.<\/p>\n

Millions of Australians clearly have money to spend.<\/p>\n

Where from, you ask? Higher wages and investments income.<\/p>\n

“The strong rise in gross disposable income was driven by COE [Compensation of Employees],” the ABS noted.<\/p>\n

“Superannuation investment income also contributed to the rise, reflecting a strong performance in the domestic share market.”<\/p>\n

The upshot of all this for the Reserve Bank is that there may be too much demand in the economy.<\/p>\n

\"A<\/p>\n

Australians are going shopping with the extra money in their pockets. (Pexels: Ron Lach)<\/p>\n

An economy overwhelmed breeds inflation<\/p>\n

When it rains too much, dams overflow.<\/p>\n

When demand exceeds the capacity of an economy to meet it with supply, inflation rises.<\/p>\n

Independent economist Chris Richardson has the hard numbers \u2014 extracted from the national accounts \u2014 to back this up.<\/p>\n

He points out that although national production, or overall supply, lifted 2.1 per cent in the three months to September, demand rose 2.6 per cent.<\/p>\n

“Worse still,” he adds, “that 2.6 per cent was probably 2.8 per cent” because the ABS just announced it had to guess the speed of the rise in illegal tobacco<\/a>.<\/p>\n

“So, although our growth rate is disappointing, it is probably in line with what we’re set to achieve over the longer term,” he said.<\/p>\n

It means “our dollar desires are pressing on the accelerator even though the clapped-out engine of the Australian economy is doing the best it can”.<\/p>\n

“That gap \u2014 too much money chasing too little stuff \u2014 is part of why price pressures are lingering,” he said.<\/p>\n

The solution? Productivity<\/p>\n

The solution is to raise productivity, but it’s happening at a snail’s pace.<\/p>\n

Quarterly growth in productivity has been oscillating between -0.5 per cent and 0.4 per cent for about 18 months.<\/p>\n

In the three months to September this year it was 0.2 per cent.<\/p>\n

The annual pace of productivity, however, lifted to slightly above the assumed rate of productivity the Reserve Bank uses in its forecasts.<\/p>\n

Loading…<\/p>\n

But, given the pace of demand appears to be increasing on the back of higher wages and investment incomes, productivity will also likely need to lift.<\/p>\n

One positive development taken from the national accounts is the notable investment in data centres by business.<\/p>\n

“This is likely due to firms looking to support growth in artificial intelligence and cloud computing capabilities,” ABS head of National Account Grace Kim said.<\/p>\n

This is a tangible example of a type of economic expansion.<\/p>\n

And the ABS also noted real unit labour costs were -0.1 per cent in September quarter, which means each worker is now, on average, costing \u2014 a slightly more productive firm \u2014 less.<\/p>\n

This reduces the pressure on business to pass costs onto customers.<\/p>\n

Multiple rate hikes could be coming<\/p>\n

But there is an inescapable fact: the economy, though only growing modestly, is buckling under the pressure.<\/p>\n

It means demand needs to fall.<\/p>\n

You could crash the property and stock markets, but few would agree to that.<\/p>\n

And you can forget further hurting young renters by footing a higher cost of living.<\/p>\n

That, rightly or wrongly, leaves mortgage borrowers to foot the bill for the productivity shortfall.<\/p>\n

And they’re now staring down the barrel of not just one, but potentially several interest rate hikes in 2026.<\/p>\n

\"RBA<\/p>\n

The state of the economy leaves RBA Governor Michele Bullock and her board with a narrow path forward.\u00a0 (ABC News: John Gunn)<\/p>\n

“In our assessment, the detail of the data showed a much healthier consumer, hot housing market and elevated unit labour costs,” investment firm Barrenjoey wrote in a note.<\/p>\n

“We continue to expect rate hikes in May and August 2026.”<\/p>\n

International bank HSBC is also onboard the multi-hike train.<\/p>\n

“Growth is on an upswing, and, in our view, the economy is already operating at, or beyond, its ‘speed limit’,” chief economist Paul Bloxham wrote.<\/p>\n

Rate hike could be here within months<\/a><\/p>\n

Hotter-than-expected inflation figures have caught many off guard and open the door for an RBA interest rate hike in 2026.\u00a0<\/p>\n

“We retain our view that the easing phase is done and shift our own central case to pencilling in hikes to begin from Q3 2026 (from Q1 2027 previously).”<\/p>\n

Note the plural “hikes” used by Bloxham.<\/p>\n

HSBC is also flirting with the idea of factoring in an RBA interest rate hike even sooner in the New Year, perhaps as early as February.<\/p>\n

Market meltdown<\/p>\n

What’s also noteworthy is most, if not all, economists have placed a caveat on their interest rate hike predictions, warning of, as Paul Bloxham phrases it, “a negative global shock”.<\/p>\n

Next week, the Federal Reserve meets and hundreds of billions of dollars’ worth of investment funds are betting on an interest rate cut.<\/p>\n

You wouldn’t want to be caught wrong-footed during next week’s press conference.<\/p>\n

At the same time Japanese interest rates are becoming more attractive by the hour to offshore investors \u2014 perhaps those without nerves of steel betting on American exceptionalism.<\/p>\n

The economic year could be set to finish off with a bang.<\/p>\n","protected":false},"excerpt":{"rendered":"An interest rate hike on Tuesday is a practical impossibility. But if a growing number of forecasters are…\n","protected":false},"author":2,"featured_media":111672,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,44128,219,12410,3499,6019,1943,3508,16400,111,139,69,14503,39488,16549,5651],"class_list":{"0":"post-170681","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-cash-rate","10":"tag-economy","11":"tag-gdp","12":"tag-growth","13":"tag-home-loan","14":"tag-inflation","15":"tag-interest-rates","16":"tag-mortgage","17":"tag-new-zealand","18":"tag-newzealand","19":"tag-nz","20":"tag-rate-cut","21":"tag-rate-hike","22":"tag-rba","23":"tag-reserve-bank"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/170681","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=170681"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/170681\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/111672"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=170681"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=170681"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=170681"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}