Inflation accelerates but economists forecast rates to stay steady through 2026
The Reserve Bank of Australia (RBA) is unlikely to adjust its official cash rate in the near term, maintaining the current setting of 3.6% as economic growth continues at a sustainable pace, according to National Australia Bank (NAB).
Prepare for soft landing
In the latest edition of its Forward View Australia report, NAB economists suggest the Australian economy remains on track for a soft landing, with only minor revisions made to growth and employment predictions for 2026. The assessment reflects a tightening of economic conditions that leaves little room for policy manoeuvre.
New quarterly consumer price index figures have exceeded the Reserve Bank’s expectations, prompting the bank to acknowledge a marked and widespread acceleration in inflation over the second half of 2025 compared to the first six months of the year.
NAB economists anticipate underlying inflation will climb above 3% in the coming quarters before gradually retreating to the target range, declining further to an estimated 2.5 per cent across 2027.
Strong labour market
Unemployment fell to 4.3% in October, a sign of labour market resilience, yet business survey data indicates the economy is operating with minimal capacity to expand.
A monthly survey of business conditions conducted in October revealed improved conditions alongside elevated capacity utilisation well above historical levels. Input cost growth and pricing pressures for final goods remain broadly consistent with long-term patterns, though early indications of margin expansion could alter this picture.
The Reserve Bank faces a constrained position.
With economic activity continuing at trend pace, joblessness remaining subdued but no longer declining, and inflation providing a less favourable backdrop, the case for further interest rate cuts has effectively disappeared.
The central bank’s stance depends heavily on whether supply-side constraints broaden or strengthen in coming months.
“Data over the next couple of months will be crucial in assessing how underlying trends in the economy are progressing on the demand side following the volatility in key data points over recent months,” the economists stated in the report.
The third quarter national accounts – anticipated to show quarterly growth of 0.5% – will offer clarity on household income growth and broader investment patterns.
Latest labour force statistics and consumer expenditure figures will reveal whether the labour market and consumer spending retain their durability as private sector activity accelerates.
The first comprehensive monthly inflation reading will follow next week, providing detailed insight into recent price pressures following the quarterly spike.
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