Inflation is rising so does that mean another rate hike is on the cards in early 2026?
Two of the major banks are actually looking at a February 2026 hike, so literally next month, and two are expecting a hold.
Consumer spending, electricity prices and rising inflation
Consumer spending increased over the Christmas New Year period. Electricity prices are still obviously high. Therefore, inflation has shot up and they’re talking about another rate hike.
The price index is up, but it’s one of those things. It’s always going to peak over Christmas. People are buying presents, people are going on holidays, so all of those measures in the inflation categories are going to spike during that period.
It’s really flooded in the news at the moment where everyone’s talking doom and gloom, rates are going to go up again.
So what we’re going to do is unpack exactly what’s happening in inflation at the moment and what the big four banks are predicting as far as rate increases go.
What’s driving inflation right now?
We’ve said it multiple times on the podcast, electricity is still up around that 20%, which is a huge contributor to that inflation figure.
Rent and housing costs again come down to the amount of stock available. Vacancy rates are quite low. Of course, that’s going to put pressure on rent prices because if there’s less of something, the more you can charge for it. It’s pretty straightforward stuff.
Why interest rates won’t fix electricity prices
Inflation kind of sucks and they bundle it all into one figure because if you actually break it up, the things affected by interest rates – consumer spending, going out, holidays – they’re at a reasonable level. They’re not too bad.
It’s the electricity and the other factors that are really pushing it higher..
You can try and pull the lever of interest rates, but it’s not going to do anything to electricity prices. That’s a different lever to pull.
Are you really going to say, it’s a 40 degree heat day today, I’m not going to have the air con on because of electricity prices? No, you’re going to have it on. You’re just going to whinge about it.
Or you’ve got to go and spend thousands on solar panels $20,000 to $30,000 and then you have to run all your equipment during the day unless you buy batteries, which cost a ridiculous amount.
Media influence and rate hike expectations
Consumer spending obviously increased over the holiday period. That’s going to contribute to inflation. Inflation has increased from about 2.7% to 3.6%, so it has picked up and they want to try and control it.
Whether it is media influence like you always talk about, are they trying to slow down consumer spending?
One of the first ways is telling everyone you’re going to do it. That’s the phase we’re at now. Feed it into the media that rates are going to go up, so you better start controlling your spending.
Personally, I don’t think that works too well.
Some economists are saying there’s a one in three chance of a hike in February, and a two thirds chance by the end of 2026. Other articles say there’s a higher probability for February.
Property market, housing supply and rent prices
The easy fix for a government when electricity prices and housing are out of hand is just to increase rates. But it’s not always the best option.
Everyone knows raising interest rates will not bring down electricity prices. They’re not linked in any shape or form.
Interest rates are not incentivising people to trade property. It’s already expensive with real estate agent fees, buyers agents, stamp duty and then increased interest rates if you upsize.
Because it’s so expensive, people aren’t selling. And I don’t think interest rates are going to drive down rent prices either.
If you increase costs to landlords, they pass those costs on.
If it’s more expensive to buy or hold property, fewer people buy. That means more people have to rent.
In my opinion, there needs to be more done around creating more housing, especially encouraging investors to build townhouses and units to open up the rental market and decrease rents.
Instead, policies like 5% deposit schemes are driving prices up.
What the big four banks are predicting
Two of the major banks are looking at a February 2026 hike. Two are expecting a hold.
If I had to pick right now, I’m saying hold.
I think it would be smarter to wait until mid-year. You can’t make decisions based on Christmas spending alone. Track it monthly, decide quarterly.
Advice for homeowners and investors
For homeowners, don’t panic. Don’t buy into the doom and gloom.
If you have cash flow, build savings. Have buffers.
If you can have $5k, $10k, $20k sitting in an offset account, that safety net is invaluable.
Even if you borrow that buffer through equity, it’s always sitting there.
If you get made redundant or rates rise, it’s accessible. If you need finance during a bad economic period, that buffer can save you.
Your repayments might be slightly higher, but you’re paying less interest because it’s in an offset.
You’re just moving money from your pocket instead of the bank’s.