Real estate agents heading into the spring selling season are facing a changing interest-rate outlook, with three of Australia’s Big Four banks now forecasting fresh Reserve Bank rate hikes before the end of the year.
National Australia Bank (NAB) became the latest major lender to pivot, forecasting the RBA will raise the cash rate at its September 28–29 meeting. NAB warned a second hike could follow in November, taking the cash rate to 4.85% – its highest setting since the 2008 Global Financial Crisis.
CBA and ANZ have also tipped a November increase, leaving Westpac as the sole Big Four holdout predicting a cut next year.
The economic hawkishness follows unsettling news on inflation. While headline CPI cooled slightly to 3.5% in the year to July, the RBA’s preferred measure – trimmed mean core inflation – stuck at 3.6% for the second straight month. Core inflation has not fallen since November 2025.
Yesterday’s July CPI reading provided fairly unambiguous evidence that Australian inflation continues to run too strongly. For the RBA, that confirms that the upside risks to inflation it has been warning about are not just risks, but already reality.
The key reason for that appears to be the unwise (in terms of the quantum awarded) 4.8% increase in award wages granted by the Fair Work Commission from 1 July.
The RBA Board can no longer be confident that inflation will return to target by late 2027 as the staff forecasts suggest, leaving the Board with little choice but to react by raising interest rates further at its September Board meeting or lose further credibility if it does not react.
Compounding the central bank’s dilemma, Australian Bureau of Statistics (ABS) data showed household spending rose 1.1% in July, easily surprising economists’ expectations to the high side for the third successive month. On an annual basis, monthly household spending surged 7% year-on-year in July, driven by a 7.8% jump in discretionary spending – the largest annual increase since June 2023.
However, the underlying data reveals that the nominal spending surge stems heavily from cost-push price increases and temporary events rather than pure consumer demand volume:
- Wage-driven inflation in key sectors: Price increases figured notably in the monthly gains for food (+1% m/m) and hotels, cafes and restaurants (+1.1% m/m). Both sectors employ many staff that would have received the excessive 4.8% minimum award wage increase granted by the Fair Work Commission from 1 July this year.
- World Cup temporary boost: Part of the strength in recreation and culture (+1.5% m/m) and hotels, cafes and restaurants reflected gambling and catering services tied to the Women’s World Cup in July, an effect expected to see some reversal in August.
- Fuel excise rollback: Fuel spending rose 2.2% as half of the cut to the fuel excise was removed from 1 July. The remainder was removed in early August and should boost fuel spending again next month. Excluding transport to filter out recent fuel volatility, household spending still increased 1.2% m/m.
“Sticky core inflation is backing the RBA into a corner, with NAB the latest major to abandon hopes of a pause,” said Sally Tindall, Canstar’s Data Insights Director.
“The bank’s economic team believes yesterday’s inflation results will push the RBA into hiking in just under five weeks’ time, and potentially once more in November. Headline inflation might look like it’s cooling on paper, but the central bank won’t be swayed by window dressing. Trimmed mean inflation hasn’t dropped since late last year, signalling that underlying price pressures remain entrenched in the economy.”
Ms Tindall pointed out that growing household demand is exacerbating the central bank’s dilemma.
“Adding to the woes is household spending rising for the third month in a row, particularly discretionary spending. It is, however, a tale of two cities, with some households scrimping for every spare dollar, while others are managing.”
The macroeconomic circumstances continue to lead to greater diversity in performance across sectors, which a further increase in interest rates will likely amplify. A number of sectors benefit from the strength in AI, defence and renewables investment (including mining and parts of construction), while others will be further pressured by higher interest rates and elevated oil prices. Thankfully, the unemployment rate remains very low, though mortgage holders face direct financial pressure.
According to Canstar analysis, a 0.25% hike in September adds $91 per month to a $600,000 mortgage. A second hike in November would add another $92, taking cumulative increases across five total rate hikes to $456 per month.
| Loan Amount | Hike in Sep (+0.25%) | Hike in Sep + Nov (+0.50%) | Cumulative Increase Across 5 Hikes |
| $600,000 Loan | +$91/mo | +$183/mo | +$456/mo |
| $800,000 Loan | +$122/mo | +$245/mo | +$607/mo |
| $1,000,000 Loan | +$152/mo | +$305/mo | +$759/mo |
“If we see back-to-back increases in September and November, as NAB has potentially flagged, borrowers with a $600,000 mortgage and 25 years remaining could be hit with an extra $183 a month in minimum repayments. Across the five hikes we’ve seen this year, that would add up to a staggering $456 monthly increase – a budget many households are not prepared for,” Ms Tindall said.