The global economic narrative continues to be dominated by an unpredictable geopolitical and trade policy environment. While the evolving outlook has weighed on business confidence, real economic effects have been limited so far, with most major economies expected to record stronger growth in 2025, relative to the prior year.

The domestic economy is showing encouraging signs, supported by rising home values and a modest rebound in household spending. However, the economic path forward is finely balanced, as the recent re-emergence of inflation and a somewhat softening labour market potentially threaten to temper the pace of economic expansion.

The outlook for interest rates has shifted significantly following the latest inflation data. The September 2025 quarter Consumer Price Index (CPI) revealed a quarterly increase of 1.3%, and an annual rate of 3.2%. The Reserve Bank of Australia’s preferred measure of underlying inflation – the trimmed mean – rose to 3.0% annually, placing it at the top of the central bank’s target band. Consequently, the prospect of interest rate cuts has diminished, with the latest Futures Market data implying a hold at the current level of 3.60% until mid-2026.

Looking ahead, the economic outlook is more complex. The stronger-than-expected inflation reading has paused the anticipated monetary policy easing cycle. This creates a balancing act for the central bank, as it navigates persistent price pressures, while the labour market begins to soften. While these near-term headwinds have introduced a greater degree of uncertainty, the foundation drivers of the economy remain supported by the underlying tailwinds of robust population growth and a gradual recovery in domestic demand.