Numbers ‘encouraging’, but inflation remains biggest concern for Aussie households
The Australian economy grew substantially faster than expected in the fourth quarter of 2025, adding to concerns that the inflation fight might only just be getting started.
Gross domestic product (GDP) expanded by 2.6% on a year-on-year basis in the December 2025 quarter, outpacing the 2.2% forecast. On a quarterly basis, the economy grew by 0.8% against forecasts of 0.6%, per Australian Bureau of Statistics (ABS) data.
It is the highest rate of economic growth in three years, buoyed by discretionary spending, attributed to strong Black Friday sales, and “strong attendance” at sporting events and concerts.
“GDP per capita increased for the fourth consecutive quarter and is now 0.9% higher than a year ago, the highest through the year growth since December quarter 2022,” said Grace Kim, ABS head of national accounts.
Labor treasurer Jim Chalmers called it good news, “particularly at a time of heightened global uncertainty”.
He said: “These really encouraging numbers are a very robust foundation from which we confront intense global economic volatility, made worse by the dramatic escalation of hostilities in Iran and across the Middle East.”
But the strong showing in the Australian economy also comes with a warning over interest rates.
“For the RBA a stronger economy, tighter labour market and inflation that is too high clearly indicates the cash rate needs to move higher,” said Commonwealth Bank senior economist Belinda Allen in response to today’s GDP print.
While GDP and inflation are not directly correlated, higher consumer demand can add pricing pressure to goods and services.
“We still expect the RBA to lift the cash rate in May and stay on hold in March, but a lively debate is expected,” Allen said.
The GDP print comes a day after RBA governor Michel Bullock (pictured) warned that ongoing conflict in the Middle East could send oil price shocks through the domestic economy.
“It’s too early to say what the impact will be,” Bullock told a Sydney audience on Tuesday. “Events are moving rapidly and there are different ways this can play out. A supply shock could, for example, add to inflation pressures. And the potential implications for inflation expectations are something we are very alert to.”
On the other hand, “a prolonged impact on energy markets could have adverse effects on global economic activity and result in downward pressure on inflation. It is not obvious how this might play out”, she told the Australian Financial Review Business Summit.
Bullock added higher inflation was a greater worry for Australian households than both job security and their own financial situation.
“Our survey consistently identified inflation as the public’s top concern in 2025, perhaps unsurprising given inflation has been elevated for some time,” she said. “At the same time, most surveyed households viewed their own job security as being at or above average, consistent with the labour market remaining a bit tight.”
