Inflation Surges: Rate Hike Looms for Households

Government spending faces renewed scrutiny following the release of bleak inflation figures, which make an interest rate hike next week virtually certain. This development is expected to further strain household finances already burdened by rising bills.

Economists have characterized the latest data as negative news for both businesses and families, with the Reserve Bank of Australia (RBA) highly likely to increase the cash rate at its first meeting of the year. Treasurer Jim Chalmers has refuted claims that Labor's spending policies contributed to the inflation spike, describing the outcome as 'unwelcome but unsurprising.'

Headline inflation reached 3.8% in the year to December 2025, exceeding the RBA's 2-3% target range. Underlying inflation also saw an uptick, moving from 3.2% to 3.3% month-on-month. Consequently, all four major banks are now forecasting a February rate rise, with some economists suggesting a 25-basis-point increase as an 'insurance tightening' measure.

The Opposition has criticized the government's handling of spending, arguing that Labor's housing and migration policies exacerbate supply shortages and fuel inflation, particularly through rising housing and rent costs. However, Treasurer Chalmers maintains that private sector demand, not public spending, is the primary driver of economic growth and inflation.