Geopolitics heighten inflation, rates fears

Australians welcomed 2026 with renewed fears of inflation and interest rates potentially rising, but it's fresh geopolitical tensions spearheaded by the US that are souring their spending and business confidence.

- Karren Vergara

The effects of three cuts in 2025, which halted at 3.6% at the Reserve Bank of Australia's (RBA) November meeting, have emboldened consumer confidence as reflected in a sharp rise in inflation in the third quarter. Most recent figures saw inflation cool to 3.4% in the year to November, lingering above the target band.

Not impressed with the numbers, RBA governor Michele Bullock made it clear she does not expect any cuts in the foreseeable future.

"Broadly, interest rates are now seeping in through the economy, and we are seeing that people are more confident about their capabilities to spend and that is a big risk," RSM Australia economist Devika Shivadekar says.

"What is concerning is the rate cuts we had earlier in 2025 have now started materialising and hitting people's bank accounts. People are finding their mortgage payments are easier."

While there were seasonal factors involved in driving up inflation numbers, Shivadekar reasons school holidays, Christmas and massive sale periods, such as Black Friday and Cyber Monday, had a part to play.