There\u2019s a new and unwelcome question being kicked around in offices, cafes and kitchens: what if the next move in interest rates is up?<\/p>\n
Two weeks ago we got news that unemployment had jumped<\/a> and it seemed the Reserve Bank of Australia was a sure thing<\/a> to cut rates on Melbourne Cup day.<\/p>\n Fast forward to Wednesday and we get the shock news that underlying inflation \u2013 the RBA\u2019s preferred measure that removes the impact of really big price moves like electricity \u2013 climbed for the first time since 2022.<\/p>\n Now nobody will take that Melbourne Cup day bet<\/a> on lower rates.<\/p>\n \u201cA rate cut before Christmas did seem reasonable, but that\u2019s not on the cards any more,\u201d says Cherelle Murphy, the chief economist at EY.<\/p>\n This is not what millions of homeowners want to hear, not when they\u2019re still struggling to cope with a plethora of costs that are way higher than they were five years ago.<\/p>\n Graph showing inflation over the last 10 years<\/a><\/p>\n Johnathan McMenamin, the head of economic forecasting at Barrenjoey, an investment bank, says inflation should still slow over the coming year, and the RBA will hold rates steady as they watch price pressures leak out of the economy.<\/p>\n But the \u201cclearest risk\u201d, he says, is that inflation is again hotter than expected in the December quarter, which could \u201clead the bank to hiking at the February meeting\u201d.<\/p>\n \u201cNot many people are going to be happy about that, but if you push me, I\u2019d have to say that the risk of a February hike is greater than a February cut.\u201d<\/p>\n That\u2019s not a widespread view, at least not yet.<\/p>\n Sign up: AU Breaking News email<\/a><\/p>\n Experts are actively debating whether the RBA is done with its rate cuts, not whether it could be forced to hike.<\/p>\n Or as Richard Yetsenga, ANZ\u2019s chief economist, says: \u201cLet\u2019s not panic.<\/p>\n \u201cIt\u2019s too early to say the easing cycle is over and the next move is a hike.\u201d<\/p>\n The morning after the release of the Australian Bureau of Statistics data, financial markets \u2013 usually a decent, if fickle, gauge \u2013 had pushed back an RBA rate cut until May, with a reasonably high chance of a March cut.<\/p>\n In Canberra, where parliament is sitting, the ABS figures landed with a thud. Normally quick to call a press conference minutes after an inflation report, Jim Chalmers<\/a> was conspicuously silent.<\/p>\n James Paterson, the shadow finance minister, wasn\u2019t shy in raising the spectre of stagflation \u2013 the high unemployment, high inflation disaster of the 1970s.<\/p>\n As the Coalition attempted to blame the inflation rebound on \u201cout-of-control\u201d government spending, Ted O\u2019Brien, the shadow treasurer, quipped in question time<\/a> on Thursday that it should be called \u201cJimflation\u201d.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Breaking News Australia<\/p>\n Get the most important news as it breaks<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n Economists are not impressed with either of these claims: that stagflation looms, or that government spending is to blame.<\/p>\n John Hawkins, a senior economics lecturer and head of University of Canberra\u2019s school of government, said unemployment in the mid-4s and inflation at about 3% did not ring any stagflationary alarm bells.<\/p>\n \u201cThat\u2019s a bit of a stretch,\u201d he says.<\/p>\n Sticky inflation at around 3% and a rising jobless rate may not be stagflation, but it is an ugly mix \u2013 one that paints a pretty dismal picture of the economy\u2019s much reduced potential.<\/p>\n Yetsenga says we are experiencing the tangible reality of an economy that is not as dynamic as it once was.<\/p>\n \u201cI feel like we often talk about productivity and it\u2019s a conceptual discussion. But productivity is very tactile; the economy can\u2019t run as quickly as it used to without overheating\u201d and pushing inflation higher.<\/p>\n