Inflation news yesterday wasn’t good for mortgage rate worriers and here’s why.

The inflation news was in yesterday and it wasn’t good for mortgage rate worriers. The key measure the Reserve Bank monitors to assess if a cut or rise is necessary was on the high side, so the expectations of a 0.25% rate rise next Tuesday have heightened among economists.

The statistic in question is the CPI’s trimmed mean, which gives the central bank an insight into the persistent price movements of the core or underlying inflation that the RBA wants around the mid-point of the 2-3% band. It actually eliminates too big and too low price changes that could over-influence the inflation reading.

This number came in for the December quarter at 0.9% taking the annual rise to 3.3%, which is outside the 2-3% band. Worse still, the previous reading was 3.2%, so there’s a rising trend.

While I’d argue if the trimmed mean came in at 3.1%, the RBA board might have given the mortgage belt a “stay of execution”, instead I won’t be surprised if the cash rate is lifted from the current 3.6% to 3.85% next Tuesday.

By the way, the more volatile headline inflation rate for the year to the end of December was 3.8%, up from 3.4%, which will be another reason the RBA might want to hose down the buying of ‘stuff’ that’s clearly making price-setting businesses raise what they charge us. This chart graphically shows the U-turn that our inflation has taken since the middle of the year after we received three rate cuts.

This has led to critics of Governor Bullock and her board for cutting too early and too much.

Interestingly, the Government-commitment to saving the planet continues to push up energy bills. These bigger-than-expected inflation readings haven’t been helped by the end of energy rebates. This is bad news, especially as we’re being told that our power bills look set to rise by 20% this year!

The second most important driver of higher inflation was insurance costs. Zyft consumer finance expert Joel Gibson told news.com.au that “all of these increases combined would mean an average Australian household should stand to shell out an additional $2,192 over the course of this year.”

Betashares chief economist David Basanese looks on the money when he said: “All up, it appears to be game, set, match for a rate rise at the February policy meeting.”

And Basanese doesn’t rule out another rise in May. The only way he could be wrong would be if unemployment starts to rise and the CPI readings monthly and quarterly show that they’re on the slide.

Before these CPI revelations yesterday ANZ and While Westpac wasn’t in the ‘rate rise in February’ camp, they are now, joining the CBA and NAB economics teams who are all arguing Tuesday will bring a 0.25% rate rise, which makes it easier for Bullock to jack up rates.

The combined effects of a stronger-than-expected economy with falling unemployment and rising inflation means rate increases are to be expected. In the US overnight, Jerome Powell (who heads up the US central bank that’s known as the Federal Reserve) resisted Donald Trump’s call for another rate cut, arguing the economy is on the improve and doesn’t need one now.

The Fed’s statement said: “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated.”

Like here, inflation is the maker or breaker for rate cuts. Until it falls, we and the Yanks won’t see any more cuts. By the way, rate rises aren’t good news for stock prices and our super, though the outlook for our resources stocks is positive and that should provide some support for our overall market, which feeds into our super balances.

Recent economic data hasn’t been great for convincing the central bank that inflation is on the way down. If the CPI comes in high this morning, watch out because rate rises might be next.

This is the last chance saloon shot for anyone out there hoping for no raising of rates by the Reserve Bank next Tuesday. The recent run of economic data hasn’t been great for convincing the central bank that inflation is on the way down. So, the Consumer Price Index out at 11.30am is a big deal.

While business and consumer confidence readings say the RBA shouldn’t be raising the cash rate from 3.6% to 3.85%, these numbers aren’t as important as the unemployment and inflation data drops.

Last week, the unemployment rate dropped from 4.3% to 4.1%, with economists expecting it to rise to 4.4%. That was a shocker for anyone hoping RBA boss Michele Bullock would ‘cease and desist’ with rate rises.

This good news story for job seekers was even better, with 65,000 jobs created in December that followed a weak November number. And most of these jobs were full time, which adds to the story that the Aussie economy is stronger than expected and a strong economy often increases inflation, rather than reducing it.

Remember if today’s inflation number is on the slide, then the RBA could sit on its hands next Tuesday when they next decide what rate we pay for loans. However, if the December quarter CPI is 0.9% or greater, then we could be looking at a rate rise next week. While this would mean annual inflation would be 3.7%, the central bank wants this measure of price increases in the 2-3% band.

In fact, the bigger focus will be on the trimmed mean for the CPI. Here if the rise is 0.9%, the annual underlying inflation would be around 3.3%.

And this is the number economists, the RBA and yours truly will be watching closely.

If the trimmed mean comes in under 3.3% for the year, then rate worriers should breathe a sigh of a relief.

If it’s bigger than 3.3%, those with a mortgage will be tightening their belts after Tuesday because your lender will be notifying you about a rate rise.

Looking at who says what, the banking economists are largely expecting rates on hold. However, there’s a big number tipping rate rises this year. On the other hand, the likes of Westpac (led by Luci Ellis, who was passed over for the top RBA job that went to her colleague Michele Bullock) would love to show her rival banking chief economists that she knows more about the Aussie economy than them.

And for the sake of the economy and those in debt, I hope Ellis shows herself as the best forecaster in town. Go Luci!

Can the Albanese Government afford to protect us from mad gun men by this proposed gun buyback proposal?

The Albanese Government is in an economic bind trying to bankroll a guns buyback, like the one John Howard pulled off as Prime Minister in 1996 after the Port Arthur massacre.

You see, it’s going to cost a lot of money. The OECD (this is the Paris-based think tank that has 38 countries, including Australia, as members) says our bloating budget deficit is heading to $36.8 billion this financial year!

While the OECD recognises the aftermath effects of the pandemic, its lockdowns and how it made federal and state governments spend ‘big time’ to avoid a recession, it has implied that the Albanese Government has over-spent or failed to encourage productivity. That’s why our inflation is persistently high.

When home ownership was looked at, this is what the economic researchers in Paris concluded: “Home ownership is expensive, with the median mortgage burden as a share of disposable income higher than any other OECD members save France and Luxembourg”.

It also underlined the following problems with our economy that the Government needs to look at. And here they are:

1. Australian industries are less competitive than the US.
2. Federal and state Govts need to reduce their budget deficits.
3. We’ve had two decades of falling competition, with a small number of companies dominating too many sectors.
4. Compared to the US, entrepreneurial start up statistics aren’t good for Australia.
5. Productivity has turned negative over 2020 to 2024, which has been mostly on PM Albanese and Treasurer Chalmer’s watch.
6. We have high living costs and housing affordability.

Now add to all this the costs of a 2026 buyback!

The AFR reports that there are 800,000 guns in Australia more than the last buyback time in 1996 after the Port Arthur massacre. And while the Government says the potential cost is $1billion, the Shooting Industry Foundation of Australia thinks it could be as high as $15 billion. With our budget outlook, this would shock not just Australians but financial markets as well! The 1996 buyback cost $771 million in today’s dollars. Queensland Premier David Crisafulli estimates that the 2026 figure for administration alone would be $160 million, raising doubts about the amount put forward by the Shooting Industry Foundation. So, this could become a national blowout for budgets.

The PM wants a 50:50 bankrolling deal with state and territory governments to reimburse gun owners.

While the PM has ruled out a one-off levy, economists say a small income tax surcharge would help cover the cost.

Former Treasury economist Chris Richardson says a 0.06% increase in our Medicare levy of 2% would raise $850 million. Former ANZ chief economist Saul Eslake also supports a one-off levy.

Is saving lives an economically positive goal? Socially, of course, the answer is yes, but the AFR cites economists who calculate that the value of someone’s life for the economy at $1.18 million. So, if we save 200 people via the buyback, that’s worth $5.9 billion to the economy!

For those with guns, President of

the NSW Firearms Dealers Paul Britton informed the AFR that the average retail costs are $1,200 for a handgun and $900 for a shotgun. A rifle, the most commonly owned gun in Australia, sells for about

$1,600. The cheapness of guns seems to be a part of the problem!

First up, there’s good news on unemployment. But this could lead to the bad news of rate rises in February.

It was great news for job seekers with the unemployment rate unexpectedly falling from 4.3% to 4.1% and 65,000 new jobs were created in December. However, this has increased the likelihood that the Reserve Bank could raise the cash rate by 0.25% on February 3.
This is crushing news for households with big mortgages and businesses with expensive loans. It’s also a negative for those businesses that supply goods and services to the Australians in the so-called mortgage belt. Potentially, these customers are not only going to be faced with bigger home loan repayments, they’ll also be spending less on lifestyle goods and services.
The only thing that can rescue those with big mortgages will be a surprisingly good Consumer Price Index (CPI) number next Wednesday, which will hose down the prospects of a rate rise on Tuesday week.
Oh yes, there is one other way a rate rise might be delayed and that would be if the RBA thinks the ABS statistician’s numbers are unreliable or seasonally known to be dodgy. Afterall, most economists expected the jobless rate to go from 4.3% to 4.4%, not down to 4.1%!
Either our economists need to go back to school, the ABS has a problematic calculator, or our economy is changing so much that once reliable models to guess things like unemployment, job creation, inflation and so on are now unreliable.
What would make economies change? Try these reasons: the hangovers from the Covid lockdowns, the work-from-home trend, the arrival of AI and big spending governments federally and at the state-level.
Treasurer Jim Chalmers welcomed the fall in unemployment. And while I can understand that, will he accept that he and his government are arguably the biggest cause of persistently higher inflation that’s making a rate cut on Tuesday week distinctly possible?
In reality, he should be holding back his crowing until that inflation figure is out on Wednesday. If it’s lower than expected, we should give him praise. But if it’s a shocker, then he should cop a right bollicking!
Why? Try these revelations in yesterday’s AFR:
1. There was a record $47.8 billion budget error!
2. Treasury public servants miscalculated how many Australians would take up budget nice guy “social support programs, such as home battery subsidies, as well as the impact of the student debt relief scheme.”
3. The AFR’s Luke Kinsella reported: “The revisions figure is the highest in the 25 years of budget history tracked by the Parliamentary Budget Office.”
4. Kinsella also pointed out that “Government spending reached 26.9 per cent of gross domestic product in 2025-26, the highest level outside the pandemic and $58 billion more than what was forecast in the Albanese government’s first budget in 2022.”
While Chalmer’s economics/public servant team have screwed up, he and his party design the policies, and his government workers try to ‘guess’ the impact on the economy and nation’s finances.
The collective stuff up adds to demand in the economy, which then adds to inflation, helps job creation and then leads to rate rises not rate cuts!
In a sense, the RBA would have relied on these ‘crap’ figures from Treasury, when it cut interest rates and so, in a sense, were misled. Thank you, Jim.
The Australian’s Matt Cranston and Noah Yim tell us that financial markets think there’s a 50% chance of a cash rate rise from 3.6% to 3.85% on Tuesday week following the drop in unemployment. Before those numbers, the betting was only 30% for a rate rise at the next RBA meeting.
Economists like Betashares chief economist David Bassanese said the lower unemployment rate wouldn’t necessarily lock in a rate hike next month, pointing to the inflation figure as more the ‘make it or break it’ issue for interest rates.
While other economists are telling us a rate rise is coming in February, they are ‘guessing’, in an economy that’s becoming harder to guess than ever before, such that public servant ‘expert’ economists (whose job it is to know our economy) have totally mis-guessed the economy! This has led to Dr Jim overspending, which might have created jobs, but it might have sustained inflation, which means higher rather than lower interest rates.

Just look at all our politicians and how they’re handling our country. Our leadership problems start with the old saying that great leaders understand: “No guts, no glory.”

Despite a pre-election commitment to solving this country’s housing supply problem that has driven house prices so high that young people are giving up on owning a home, this is another case of politicians over-promising and under-delivering.

When you look at the Prime Minister’s stumbling efforts to deal with the Bondi massacre and the simmering anti-Semitism that ran before it. And then you see the Coalition disintegrate as a team — with the Nationals refusing to support Susan Ley over her agreement with the Government to ‘shut up’ racist people most of us think are loonies. Given all this, you know our leadership problems start with the old saying great leaders understand, which is “no guts, no glory.”

That said, while Susan Ley has been mistreated by her side, she too hasn’t demonstrated the leadership qualities that would’ve have nipped in the bud the disloyalty we’re seeing from her Coalition.

John Howard and Bob Hawke would have stared their in-house enemies down and made sure they were isolated from the main team. Tough politicians like Donald Trump and Margaret Thatcher do kick arse. They’re often seen unlikeable and unreasonable, but they successfully lead the sheep-like and potential enemies within their party.

Of course, PM Anthony Albanese suffers from a similar leadership inadequacy problem. But even though he has too many anti-business zealots in his team, it’s a stronger team than the Coalition. Lots of Australians might not like many Federal Labor Ministers but they are strong on the messages they support, even if the messages aren’t helping the economy with inflation, interest rates and other problems, such as the supply of new housing.

While the failure of lots of politicians is down to a guts problem, this housing festering sore never gets solved properly and remains with us because of a genuine lack of commitment. The words that carried the promise of 1.2 million homes over a decade haven’t been backed up by a commitment to make that happen. It takes guts to remain committed.

Ask anyone who has already broken the New Year Day promise of self-improvement already! They know how a lack of real commitment explains their failure. Thankfully, in our new short-cut tech-solving world, Ozempic has come to rescue diet-breakers. However, our politicians don’t have what looks like an easy solution to our housing supply challenge.

Be clear on this: too low housing supply with its high price and rent effects are a big part of our inflation and interest rate problems that cruels lots of Australians lives.

Here’s a question for you: Who’s our Federal Housing Minister? Most Aussies wouldn’t know that it’s Clare O’Neill. While O’Neill is regarded as a pretty good politician, she hasn’t been forceful and pushy enough to make Albo’s promise on housing happen.

Someone has to take the blame for failure.

So, what does that failure look like? Nathan Schmidt of The Daily Telegraph did the homework on this subject. Here’s the guts of the matter:

1. The Government is 80,000 homes short of being a quarter way through its five-year timeframe.
2. The Australian Bureau of Statistics says 218,974 new homes have been built in 15 months. But the target was 300,000!
3. While building commencements are up 11% in the year to September 2025, experts say it’s still too slow.
4. While NSW should have got 94,000 homes over those 15 months, the number was only 55,557.

Treasurer Jim Chalmers admits that “housing-related infrastructure and taxation

reform” is needed but concedes Canberra needs to do more on the infrastructure front.

Housing Industry Association (HIA) senior economist Maurice Tapang explained to The Daily Telegraph what’s needed: “Demand is not the challenge. Delivery is. Land supply, infrastructure

timing, planning bottlenecks and workforce capacity will shape the 2026 experience more than interest rates”.

O’Neill needs to get state premiers and key local council leaders together to get a national commitment to make approvals easier and kill barriers to building homes for young Australians.

This isn’t going to happen unless someone like O’Neill shows guts, names the names of those frustrating the housing supply goals and, ultimately, delivers on her leader’s promise.

Given the threat of inflation and rising interest rates to both the material lives of those with mortgages and the overall economy, this goal of more housing ASAP looks like an aspirational target that a courageous politician should publicly fight for.

Margaret Thatcher once said: “If you want something said, ask a man If you want something done, ask a woman.”

I suggest Ley and O’Neill go for it and remember Thatcher’s words!