Interest Rates and Inflation Outlook for 2026

According to Ray White Group Chief Economist Nerida Conisbee in the recently released Property Outlook 2026 Report, expectations for interest rate relief in Australia are diminishing as inflation demonstrates persistent behavior through late 2025.

Key Findings:

Rate Cut Prospects Fade

The optimism surrounding early interest rate cuts has largely evaporated, with Ray White’s analysis indicating that any potential RBA cash rate reduction would likely be delayed until the second half of 2026 at the earliest. This represents a significant shift from earlier market expectations.

The Inflation Challenge

Conisbee identifies the core issue as not isolated data points but rather the broader pattern of inflation behavior across the economy. While goods-related prices have moderated substantially, services inflation—particularly in property-related sectors—remains stubbornly elevated.

The report highlights specific areas of concern:

• Rental costs continuing to rise
• Utilities and insurance premiums increasing
• Labour-intensive services maintaining elevated price growth

These categories are less responsive to interest rate adjustments and reflect deeper structural issues including supply shortages and capacity constraints that concern the Reserve Bank.

Property Market Implications

Construction and Supply Challenges

Ray White’s analysis points to significant ongoing pressures within the property sector itself. Persistent rental inflation signals continued housing supply shortages, while elevated construction and maintenance costs create barriers to bringing new housing stock to market quickly. Despite some early signs of improvement in supply pipelines, the sector continues working through aftereffects of labour shortages, high material costs, and project delays.

Economic Contradictions

The report notes an interesting dichotomy in the broader economy. While several indicators suggest economic cooling—including subdued household spending, mixed business confidence, and softening discretionary sectors—these conditions haven’t been sufficient to trigger monetary policy easing. The Reserve Bank appears committed to prioritizing sustained evidence of inflation returning to its target range before considering rate cuts.

Rate Increase Still Possible

Notably, Ray White’s economists have not completely ruled out the possibility of further rate increases. While described as an unlikely scenario, the persistence of services inflation means this risk remains in the background as policymakers work to prevent inflation from becoming entrenched in the economy.

The Most Likely Scenario

According to the Property Outlook 2026 Report, the most plausible path forward involves an extended period of rates remaining at current levels. Borrowing costs are expected to stay elevated throughout much of 2026, with any potential reduction pushed toward year’s end.

For the property market specifically, this translates to:

• Continued affordability pressures
• Cautious lending practices by financial institutions
• Ongoing reliance on strong population growth as a market driver
• Rental market tightness supporting housing activity

Bottom Line

As Conisbee concludes in the report, while inflation will continue to ease over time, the pace of progress is proving slower than anticipated. This delay is directly shaping the interest rate trajectory and reinforcing the likelihood that 2026 will be another year of “higher-for-longer” mortgage costs before meaningful relief arrives for borrowers.

Source: Ray White Property Outlook 2026 Report, authored by the Ray White Economics Team including Chief Economist Nerida Conisbee, Head of Research Vanessa Rader, and Senior Data Analyst Atom Go Tian.