Inflation pain to linger beyond 2026 for Australian households

Australia’s living standards are unlikely to return to pre-inflation crisis levels for several years – and maybe not until the end of the decade – according to exclusive analysis of RBA forecasts.

The impact of inflation will linger for years to come, according to analysis of the RBA’s forecasts.

Australia’s living standards are unlikely to return to the levels they were before the inflation crisis hit until well beyond 2026, and possibly not until the end of the decade, with the household pain caused by the price shock set to continue for years to come.

Real household disposable income will recover only half the ground lost during the crisis by 2026, with the likelihood that households will continue to remain worse off overall even after inflation has been returned to the central bank’s target band.

Analysis of the RBA’s own forecasts contained in its November statement on monetary policy show real household income per capita will rise by 1.2 per cent in 2025 and then 1.1 per cent in 2026 with a forecast increase of 1.3 per cent in the latest December quarter. It suggests a recovery in living standards has begun but on the back of the sharpest decline since World War II.

The Coalition has used the last parliamentary sitting week of the year to zero in on the decline, after The Australian last week revealed that living standards over the past two years had fallen more sharply than any other period since 1959, including the four technical recessions to have occurred since then.

The government has also presided over the longest-running household recession on record.

Anthony Albanese on Tuesday defended his government’s record on living standards, and said the government has got wages up and inflation down in the face of major economic challenges.

“We came to office of course in 2022 with a number of challenges that we were facing. Global economic uncertainty was there, a worldwide surge in inflation and energy prices. Inflation when we came to office had a six in front of it and was rising,” the Prime Minister told parliament.

“So now, instead of a six in front of it and rising, inflation has a two in front of it and is falling. Now we have a million jobs that have been created on our watch. The gender pay gap is now at a record low. We have back-to-back budget surpluses for the first time in nearly two decades.

“If they had have had their way, this reckless and arrogant opposition, things would have been worse.”

Even with the RBA factoring in a reduction in interest rates from 4.35 per cent to 3.5 per cent by the end of 2026, the numbers show that living standards will still remain 4.4 per cent down on where they were at the time of the May 2022 election. Assuming an average annual rise in living standards of around 1 per cent, a return to pre-election living standards may not occur until closer to the end of the decade.

The analysis is based on real disposable household income divided by population growth forecasts to arrive at real disposable household income per capita.

Opposition Treasury spokesman Angus Taylor said Australians would be still living with the damage of the inflation crisis well into the late 2020s.

“Australians are worse off than they were almost three years ago and there is no quick recovery in sight,” Mr Taylor said.

“Australian households will continue to feel the pain of 12 rate rises under Labor for many more years to come. Costs are up, incomes are down, and families are really struggling.

“We are in the longest household recession on record, living standards have fallen off a cliff and Australians are working harder to try and keep their heads above water.

“Australians are paying the price for Labor’s economic mismanagement,” Mr Taylor said.