Dean Smith: New year, same old inflation as Michele Bullock warns of interest rates rising in 2026

West Australians may have embraced Christmas with cheer, but there is now an ever-growing sense of New Year fear. It stems from a repeated warnings made this year from the governor of the Reserve Bank. Michele Bullock has made it clear: if Australia’s inflation problem persists, interest rates may need to begin to rise again in 2026. Following the RBA rate decision earlier this month, Ms Bullock observed: “If it does look like inflation is not coming sustainably back to the band, and it’s going the other direction then the board will have to take action, and it will.” The RBA is signalling this caution because the Albanese Labor Government’s financial mismanagement during 2025 has kept inflation higher for longer, leaving families, seniors and first home buyers, among others, badly exposed. Cost of living has now been the country’s top concern for four consecutive years. In the latest JW Research True Issues survey, 77 per cent of Australians listed it among their leading worries in 2025, well ahead of health, housing or climate. Inflation has climbed back to 3.8 per cent over the year. Economist Chris Richardson captured the underlying problem when he succinctly stated, “The cause of cost-of-living pain is inflation … It’s too much money chasing too little stuff.” There is no mystery here. That money is coming from Canberra. Under the Albanese Government, Federal expenditure has surged to levels not seen since the 1980s, outside of outliers such as recession and the pandemic. Since Labor took office in 2022, government spending has jumped from 24 to 27 per cent of GDP. Last financial year, it grew at four times the rate the Australian economy did. Rather than cooling inflation, Labor’s budgets have inflamed it — an effect now being referring to as “Jim-flation.” For WA households already absorbing higher bills amid shrinking real wages, 2025 has been a difficult year. And the West is uniquely affected. Perth continues to experience some of the highest cost-of-living pressures in the country, recording 4.5 per cent inflation in the September quarter. That is the second highest of any Australian capital city. Price rises for education, recreation and culture, clothing and housing — which includes power bills, gas, housing and building costs — were all above 5 per cent for the past 12 months. The single biggest factor was the ending of the State Government’s power rebates, increasing the out-of-pocket cost for electricity. Then there is the housing situation. Rents in Perth lifted 6.6 per cent through the year, and the latest report from the WA Make Renting Fair Alliance has found renters across the State are paying on average $15,000 more per year as a result. This is directly linked to skyrocketing property prices, with Perth’s median house price rising by nearly $300,000 in three years to $914,229 — the third highest nationally after Sydney and Brisbane. Regional WA is also feeling the pressure. In Albany, for example, the median house price has surged 18.4 per cent in a year. Now the Albanese Government’s changes to the Home Guarantee Scheme are injecting thousands of new buyers into our already undersupplied housing market and pushing prices up further. It is yet another example of a Labor policy that creates a short-term sugar hit, followed by a long-term affordability hangover. And it is not only younger, aspiring property owners being affected. One of the most striking indicators of inflation and rising costs is the number of seniors forced to return to work simply to stay afloat. Recent ABS data shows a record 35,700 West Australians aged 70 and older are now in the workforce. This represents an increase of 31.2 per cent in just one year. One in 10 West Australians over 70 is now working, compared with one in 25 a decade ago. Over the past 12 months alone, 8500 seniors have re-entered the work force because they cannot afford retirement on fixed incomes eroded by rising cost of living. Once, working into one’s seventies was a choice, but under Labor it is becoming a financial necessity. It is especially pronounced among those who do not own their home and census data shows that the number of Australians aged 55-64 who own their homes outright has almost halved in two decades. Research from Digital Finance Analytics reveals three quarters of retirees with a mortgage owe more than they have in superannuation, leaving many with no choice but to delay retirement. Whether it is households struggling under rising power bills, first home buyers priced out of the market or seniors forced back into the workforce, there is a growing pattern of hardship under Labor. On top of it all, the Albanese Government’s policies are only adding fuel to the fire. Energy settings have driven prices higher, electricity rebates masked inflation temporarily, housing interventions are inflating demand and Canberra’s persistent overspending is pushing our economy well past its capacity. That is why Ms Bullock ended 2025 issuing a fresh warning to households — and why we can expect them to be sharpened in 2026. West Australians were right to embrace this Christmas with cheer and to have enjoyed the festive season with family and friends. But unless Treasurer Jim Chalmers begins the new year reining in spending, the Reserve Bank will have no choice in 2026 but to act where the Albanese Government has failed to. And it will do so using the only tool available to it — by raising interest rates. That’s the fear for the new year, and it’s on Labor to make sure it does not happen. Dean Smith is a Liberal Senator for WA