Persistent inflation drives a second year of rate hikes
Australian inflation has proven stubborn, and a recent survey of major economists suggests the Reserve Bank of Australia (RBA) will not be able to pause its campaign against rising prices. The consensus is clear: interest rates are likely to rise at least twice this year, with some foreseeing multiple increases as the economy navigates higher living costs and a still-tight labour market.
What the economists are predicting
The survey aggregates views from prominent economists who regularly assess Australia’s macroeconomic trajectory. The central message is that inflation remains above the RBA’s target range, forcing policymakers to lean toward tighter monetary policy. While some forecasters expect the pace of hikes to slow as inflation cools, the majority anticipate that the official cash rate will climb further before the year ends.
Analysts point to several factors sustaining price pressures: resilient consumer demand, elevated services inflation, and persistent wage growth that can feed into broader price setting. The risk, per the economists, is that inflation becomes entrenched if expectations become unmoored, prompting the RBA to act decisively with rate increases.
Two or more hikes? What the market is pricing in
Based on the survey, markets appear to be pricing in a path that includes at least two rate rises within the next 12 months. Some forecasts point to as many as three moves if inflation refuses to relent or if domestic demand remains stronger than anticipated. The prospect of back-to-back hikes challenges borrowers, particularly households with variable-rate mortgages, and influences business investment decisions as higher financing costs bite into profits and expansion plans.
Implications for households and the broader economy
For households, the expectation of continued rate increases translates into higher monthly repayments and tighter budgets. Economists warn that consumers may need to recalibrate spending, prioritising essentials and reducing discretionary purchases. While consumer confidence can dampen in the near term, a gradual easing of inflation later in the year could help the economy regain traction without triggering a renewed downturn.
Businesses, especially those reliant on credit, will watch the RBA’s policy path closely. Higher rates can curb borrowing and slow investment, potentially cooling housing markets further and influencing employment dynamics as firms reassess hiring plans. Yet some sectors may benefit from a stabilising inflation outlook, which can support long-term planning and wage negotiations.
What could change the outlook?
Several scenarios could alter the rate trajectory. A sharper-than-expected decline in inflation would reduce the need for aggressive tightening, while a run-up in wages that surpasses productivity gains could keep price pressures stubborn. External shocks, such as global energy price shifts or supply chain disruptions, can also play a decisive role in shaping the RBA’s policy response.
Policy communication will remain key. The RBA’s public messaging about how many hikes are anticipated and under what conditions they would stop will influence financial markets, consumer expectations, and business confidence. If inflation trends toward the midpoint of the target, the bank could signal a slower pace of increases or a hold in rates. Conversely, ongoing inflation surprises could prompt a more aggressive path.
Bottom line
Economists broadly agree that rates are unlikely to stay put this year as inflation stays stubbornly high. The expectation of at least two increments to the official cash rate reflects a cautious approach by the RBA, aimed at anchoring price growth and safeguarding the economic recovery. Borrowers and lenders alike should prepare for a year of shifting policy signals and mindful budgeting as the landscape for interest rates evolves.
