The Reserve Bank of Australia (RBA) may have left interest rates unchanged last week, but beneath the polite language and careful caveats, the governor delivered a far harsher message to Albanese. The warning was unmistakable: If inflation isn’t reined in, the RBA will do it themselves by raising interest rates.
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Australia’s inflation problem is now fully exposed. Temporary electricity bill rebates masked underlying price pressures, and now the most recent quarter reveals a far more uncomfortable truth. Inflation is sticky, persistent, and drifting well outside the target the RBA is sworn to defend.
For the first time in months, the Bank conceded that the risks have flipped and inflation, not growth or employment, is the main concern.
But here’s what the government won’t say out loud. Much of this inflationary persistence is self-inflicted. Over recent years, federal spending has surged, crowding and overheating large parts of the economy. The latest 2025–26 federal budget locks in structurally higher public expenditure and a return to deficit after two years of surpluses.
The numbers tell the story here. In 2024-2025, the government ran a roughly A$10 billion deficit even as payments hit 26.2 per cent of GDP, the highest ratio in nearly four decades outside major crisis years.
Looking ahead, the 25–26 Budget projects much heavier deficits, with structurally elevated spending across welfare, infrastructure, defence and household support.
This surge in public demand pours more money into the economy at a time when private-sector investment is only slowly recovering. That flood of cash, combined with tight supply (in housing, labour, services), feeds directly into prices and wages, deepening inflation.
So, on Tuesday, December 9, when the governor essentially told Canberra, “Get inflation under control, or we will, and we will sacrifice the economy if we have to,” it wasn’t rhetorical. It was a threat, and it matters.
For everyday Australians, the message should be clear. Don’t assume the worst is over: Avoid taking on unnecessary debt and be cautious with speculative risks.
If you borrow, borrow only for productive investment, because unless government spending is reined in, the RBA may bring out the hammer by lifting interest rates, and 2026 could become a year nobody forgets.
For now, good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and an international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au.
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