The Reserve Bank’s decision to hold the cash rate at 3.6% has marked the end of the current easing cycle. This shift is catching households unprepared after a year of growing optimism. Inflation unexpectedly rose to 3.2% in the September quarter, the highest in over a year, while unemployment increased to 4.5%.
Earlier in the year, the economy had shown signs of recovery, which led to three rate cuts and the belief that inflation was under control. That outlook has changed. With demand continuing to outpace supply and a slow rise in joblessness, the central bank is now limited in how much it can stimulate growth without adding to inflationary pressures. A long-running slump in productivity, which has lasted more than a decade, lies at the core of the problem and continues to undermine the country’s economic flexibility.
Government spending has increased to 27% of GDP, the highest level since the 1980s. Some argue this supports growth while also contributing to inflation and discouraging private investment. At the same time, the opposition’s efforts to offer a small-government alternative are being diluted by internal divisions, weakening the broader policy debate.
Trade provides some positive news, particularly rising exports to the United States and benefits from the AI sector. However, these external gains are not enough to make up for underlying domestic weaknesses. As international uncertainties grow, policy in Canberra must refocus with urgency on strategies for lasting growth.
The Albanese government has committed to improving productivity and intergenerational fairness. Yet, its actions do not currently reflect the scale of the economic challenge. A bolder reform program is required, one that tackles structural weaknesses, improves fiscal discipline and restores investor confidence. This will be essential if Australia is to avoid a future marked by weak growth and persistent inflation.
