Economists warn tough inflation fight means high interest rates are here for decades

Economists have delivered a crushing Christmas blow to homeowners, insisting the RBA will hold rates today, but warning the high cost of living could impact families for decades.

High inflation could have a crushing impact on struggling Aussie families with one expert warning high prices and interest rates could persist for decades.

ASX Trader, David Bird, said inflation had to be tackled quickly to avoid a longer period of economic pain in Australia.

The grim warning comes as market watchers agree there will be no joy for homeowners in today’s RBA interest rate announcement at 2.30pm.

The RBA is expected to maintain the current 3.6 per cent base rate after a higher than expected inflation rate reading two weeks ago.

In a survey run by comparison site Finder reported all 35 economists polled predicted a hold

with one economist describing the RBA as the “grinch that stole Christmas”.

ASX Trader David Bird warns we could be on the cusp of a forty-year supercycle of upwards interest rates. Pictures: Adam Head

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Economists wouldn’t be drawn on what decision may be made around rates in 2026, but Mr Bird said it was more of a super cycle thing and it was global.

“It’s not just a couple years we’re looking at decades,” he said.

“If you look at the US 10-year bond yields, you’ll notice that they run on a 40-year cycle.” “So, they bottomed in 1940 … and then they increased for 40 years from 1941 to 1981. And then from 1981, they topped. And then from there, we’ve had a decrease in interest rate environment for the last 40 years and they bottomed in 2021”

Mr Bird is pessimistic whether the RBA or any of the world’s central bankers will tame inflation in the short term.

“If you look at history, they’ve never ever tackled inflation the first time,” he said.

“Do we really think they’re going to tackle inflation the first time this time when we’ve had the largest money printing period we’ve ever had?

Governor of the Reserve Bank of Australia (RBA), Michele Bullock. Pic: Martin Ollman

“So if they didn’t tackle it quickly last time when we didn’t have as much money in the economy. The chances aren’t very good that they’ve done it this time”

Head of consumer research at Finder, Graham Cooke, said Australia’s economists were sending a clear message – don’t expect rate relief anytime soon.

“With inflation starting to get away from the RBA, the board appears committed to steady rates for now,” he said.

“Any festive rate cuts are firmly off the table, and borrowers will need to prepare for a cautious start to 2026 rather than a sudden reprieve.”

Graham Cooke, head of consumer research at Finder, said Australia’s economists are sending a clear message: don’t expect rate relief anytime soon.

Talk of interest rate hikes to control inflation was firmly rejected by KPMG’s Chief Economist Dr Brendan Rynne.

He said he believed winding down government spending could help.

“Public sector consumption as a proportion of GDP in the September quarter was 23%. It’s the highest level since the start of the ABS data in September 1959,” he said.

“Ideally what you’re wanting is public sector spending to be counter-cyclic – to take up slack when the private sector is weak – that weakness is now abating, but the public sector spending isn’t.”

KPMG chief economist Brendan Rynne believes dialling back public spending can ease inflation pressures. Picture: Alan Barber

Independent Economist Saul Eslake said he didn’t believe Australians were prepared to take the tough medicine required to get inflation down.
“When it comes to the biggest component of the cost of living – housing – Australians don’t want that problem to be solved,” he said.
“There is no painless way of getting inflation down, and certainly no way of getting it down quickly.”
Head of the Deloitte Access Economics, Dr Pradeep Philip, said Australia needed to address more persistent supply-side problems.

“From our point of view there are some demand elements but we’ve seen more supply-side things that need to be addressed to structurally bring down inflation,” he said.

“We’ve seen shortage of labour and skills and in areas planning which have all kind of slowed the supply of housing.

Dr Pradeep Philip, Partner at Deloitte Access Economics, believes boosting capacity is the long term solution to controlling Australian inflation. Picture: Liam Kidston

“The bottom line is we should not see the Reserve Bank as and interest rates as the only institution and tool that we have to deal with inflation.”

Dr Philip said any attempt to get inflation down would be difficult.

“There’s never a silver bullet. When addressing the question of bringing inflation down, there’s very rarely a short-term solution,” he said.

“So, it’s neither quick nor easy and it’s not one thing.”

Originally published as Economists warn tough inflation fight means high interest rates are here for decades