Most of the past year has been spent asking when the next rate cut would land. Over the past fortnight that question has flipped. A run of stronger than expected data has pushed the market to price in higher rates before the end of the year, and it has forced a rethink of plans that many business owners had built around the idea that borrowing costs had peaked. If you have been holding off on refinancing, sitting on a decision to buy equipment, or waiting for cheaper money before you expand, this is the moment to look again at the numbers.
Here is what shifted, and more importantly, what it means for the decisions in front of you.
Inflation refuses to behave
The headline story is inflation. The most recent monthly reading came in hotter than almost anyone expected. Underlying inflation, measured by the trimmed mean that strips out the noisiest price movements, rose 0.5 per cent in the month against market expectations of 0.3 per cent (ABS). That may sound like a rounding error, but on a monthly basis it was one of the strongest results on record, and it now points to underlying inflation running at around 1 to 1.1 per cent for the September quarter.
What makes the number harder to dismiss is how broad it was. Roughly 40 per cent of the goods and services in the basket saw prices rise by more than 0.5 per cent in the month (ABS). When price pressure is concentrated in one or two categories, it can be waved away as a one off. When it is spread across nearly half the basket, it tells you demand is still running ahead of what the economy can comfortably supply.
For the Reserve Bank, that is exactly the signal it does not want to see. The market has now moved to fully price a rate rise before the end of the year, and our own reading has shifted from expecting a single hike late in the year to two, potentially as soon as next month and again in November. The central bank has historically waited for the full quarterly inflation figures before changing course, but the monthly data has carried enough of a warning that acting early looks increasingly likely. A second move would be less about the current numbers and more about taking out insurance against risks that keep building. This week’s growth figures will be the next test of that thinking.
The consumer who will not slow down
The second surprise sits underneath the inflation story and helps explain it. Household spending has not cooled the way higher rates were supposed to make it. Spending rose 7 per cent over the year to July, the strongest result on record outside the pandemic period (ABS). More telling still, discretionary spending, the money people choose to spend rather than have to, drove more than two thirds of that increase.
This is the puzzle facing the Reserve Bank. Rates are elevated, consumer confidence surveys read as weak, house prices are falling in the big cities, and there is no shortage of global uncertainty. On paper, all of that should be pulling spending down. Instead, spending has grown at or above 1 per cent a month for three months running. Until that changes, the private side of the economy is not slowing at the pace the Reserve Bank needs to bring inflation back to target, which is precisely why the risk has tilted back towards higher rates.
The picture is not uniform across the country. Western Australia has been the standout, with discretionary spending up 10.7 per cent over the year to July, while New South Wales and Victoria trailed the pack at 6.9 per cent and 7.2 per cent respectively (ABS). That gap matters if your business sells across state lines or is weighing where to put its next dollar of investment. It also flags where the soft spots may appear first if conditions turn. Victoria is carrying the weakest labour market in the country, with unemployment at 5.1 per cent in July against 4.5 per cent nationally (ABS), and it has seen little house price growth to cushion households. If spending does eventually roll over, that is the state most exposed.
Property is softening, but not falling apart
The third piece is the housing market, and here the news is more balanced than the headlines suggest. Dwelling prices fell again in August across every state capital, over both the month and the quarter, with Sydney and Melbourne leading the declines. On current trends, prices look set to fall by around 7.5 per cent from their peak, with the low point likely in early 2027. Measured against past downturns, that is an ordinary correction rather than a collapse.
Two details are worth holding on to. First, regional markets are holding up far better than the capitals. Melbourne and Sydney values have fallen roughly 6 and 7 per cent, while regional Victoria and New South Wales have slipped only around 1 to 1.5 per cent. In the smaller states, regional prices in Western Australia, South Australia and Tasmania are still sitting above where they were at the national peak earlier in the year. Second, and encouragingly, the pace of the decline appears to have turned. August was the first month since the falls began that the monthly rate of decline eased rather than accelerated, softening from 1.2 per cent to 0.9 per cent. History suggests monthly falls rarely push past about 1.5 per cent even in sharper downturns, so the trajectory is staying well within familiar bounds.
For anyone holding commercial or residential property as security, or watching valuations before a refinance, that combination matters. Values are drifting lower in the major cities but the slide is orderly and appears to be moderating, and regional assets are proving more resilient.
What this means for your next move
Pull these threads together and the message for business owners and CFOs is straightforward: the cost of debt is more likely to rise than fall in the near term, and the window to lock in current pricing may be narrowing.
On debt structure, this is the time to revisit the split between variable and fixed. We are not suggesting anyone rush to fix everything, because that decision depends heavily on your cash flow, your appetite for certainty and how long you expect to hold the facility. But if a further one or two rate rises would put real pressure on your repayments, the value of certainty has gone up, and it is worth modelling what those moves would do to your position before they arrive rather than after.
On refinancing, do not assume the door has closed. Even in a rising environment, margins between lenders vary widely, and the gap between a sharp deal and a lazy one can outweigh a rate move or two. If your facility has been sitting untouched for a couple of years, there is a strong case to test it against the market now, while your valuations and trading figures still support a clean application.
On expansion and asset finance, the calculus is about timing. If you have been waiting for cheaper money before committing to new equipment or premises, waiting may now cost you more, not less. Locking in asset finance while you can plan against known pricing is often more valuable than gambling on a cut that keeps slipping further away. Equally, if your expansion leans on consumer demand, the state by state differences are worth building into your assumptions.
On working capital, resilient consumer spending is good news for revenue, but a tighter rate environment rewards businesses that are not caught short. Making sure you have appropriate headroom, whether through an overdraft, a line of credit or a well structured trade facility, is cheaper to arrange when your numbers are strong than when they are under strain. It is far easier to put a facility in place while you do not need it than to negotiate one in the middle of a cash flow squeeze, and a rising rate cycle tends to expose the businesses that left it too late.
None of this points to panic. The economy is still growing, consumers are still spending, and the property correction is behaving like the ones that came before it. What has changed is the direction of the next rate move, and that alone is reason enough to stress test the assumptions your borrowing decisions rest on.
If you would like to run the numbers on your current facilities, or simply want a second opinion on how a further rate rise or two would land on your business, we are always happy to talk it through. A short conversation now can save a lot of second guessing later, and there is no cost to getting a clear read on your options.
The information in this article is general in nature and does not take your personal circumstances into account. It is not financial, tax or credit advice. Please seek advice tailored to your situation before making any decisions.
