Australian households face a second hiking cycle as global inflation reignites

Australian households now face a second consecutive rate hiking cycle, compounding financial pressure just as they begin to recover from previous tightening. The Reserve Bank of Australia reversed its 2025 rate cuts in February 2025, responding to persistent services inflation that remains above target globally. This inflation is driven by wage-sensitive sectors and elevated government spending, which in Australia accounts for its highest share of GDP since World War II. Financial markets have priced in 56 basis points of additional RBA rate hikes by November 2025, potentially pushing the cash rate to 4.65 per cent—or beyond 5 per cent. Higher interest rates directly increase borrowing costs, particularly for mortgage holders, squeezing household budgets. The European Central Bank and Reserve Bank of New Zealand have also signaled imminent rate increases, mirroring a global policy reversal. US core PCE inflation rose at a 3.4 per cent annualised pace over six months, exceeding the Federal Reserve’s 2 per cent target. Debt issued during the 2020–2021 near-zero interest rate period is now maturing into a high-rate environment. Jeffrey Gundlach warns small and mid-sized companies face heightened risk of default and insolvency due to refinancing pressures. Without fiscal discipline, Australia may face a severe recession to suppress demand and achieve price stability.