Aussies are at a crossroad this summer ahead of expected rate hikes next year. Picture: Jake Nowakowski
As Aussies splash cash this summer, Compare the Market economic director David Koch warns the cost-of-living crisis isn’t over – and 2026 could hit household budgets like a sledgehammer.
He breaks down below the major changes of 2025 and what households should brace for in 2026.
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Compare the Market economic director David Koch shares his insights into 2025/26 below.
The year that was
“Sure, Christmas is about the present, but it’s also the perfect time to take stock of the past year and look ahead to the future. So, while you’re carving the ham and passing the pav, let’s do a quick audit of 2025 and a reality check on what 2026 could bring for your wallet. Like a heavy Christmas lunch, it could be that history repeats on us.
Ask around and nine in ten Australians will tell you, the cost of living didn’t improve this year.
That’s according to Compare the Market’s Household Budget Barometer. It’s a nationally representative survey of 3,000 Australians and it’s become my go-to temperature check on the nation’s financial wellbeing.
Home and contents quotes were up nearly 23%. Car insurance quotes up close to 18%. Energy bills on default market offers increased up to 9.1% in parts of the country.
The average grocery spend was up $6.50 a week – that’s $338 over the year.
It’s no surprise people are feeling pessimistic, really.
Homeowners got some relief from rate cuts in February, May and August – but with bigger loans to manage, many would argue the cuts didn’t go deep enough. And now it looks like we won’t be getting any more for the foreseeable future.
If 2025 felt tough, brace yourself – because the forces shaping 2026 are already in motion.
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RBA Governor Michele Bullock is set to deliver a couple of shocks in the new year. Picture: NewsWire / Christian Gilles.
The year that will be
Here in Australia, it’s all about inflation. It’s as simple as that.
The September quarter CPI figure was higher than expected. The October monthly figure was higher than expected.
Now the Reserve Bank will be fixated on December quarter inflation figure, which will come out in early 2026. That will set the tone for the rest of the year.
Last week the OECD warned that Australian Government’s had to cut back spending which is at near record levels. That it was too high and adding to inflation and Government debt.
RBA Governor Michelle Bullock told a parliamentary committee on the same day that Government spending was adding to inflation and one of the major reasons interest rates are staying this high … and could go higher.
Personally, I don’t think we’re going to get an interest-rate cut at all in 2026, which will be weird, because in America, they could have two or three!
And if inflation keeps going the way it is trending and accelerating, you never know, the next interest rate movement could be up.
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Kochie does not believe Australian borrowers will get any interest rate cuts in 2026 even if those in the US do.
I think that would be psychologically damaging for the economy and for homeowners. In terms of the economy – it’s at a turning point.
And it’s not just local pressures – global events could throw more curveballs our way. Don’t forget the American midterm elections. Donald Trump’s approval rating has dropped. So if he goes pork barrelling and splashing lots of money in America, what’s that going to do to that economy and inflation?
So that’s a bit of a dark cloud and unknown on the horizon.
I reckon the only certain thing in 2026 is the value of capital city residential properties will continue to rise, because there is such a shortage.
No matter what the economy is doing, no matter what happens to interest rates, I think there’ll be solid growth.
While housing prices seem set to defy gravity, the job market offers another silver lining.
The job market remains strong heading into the New Year. That means, even though cost of living crisis will continue, it looks as though those who want a job can to get a job.
You really don’t want a double-whammy, where living costs are sky-high and people are also out-of-work. Anyone who can remember a recession, lives in fear of another one.
Homeowners are being urged to shop around to create their own rate cut.
What you can do
Nobody knows for sure what the future holds. Historically, Australia’s economy has been resilient against recessions – and hopefully we don’t wind up in a situation where we’re hiking rates to bring inflation back under control.
I think Australians have had enough of that over the past few years. In any case, it’s never a bad idea to keep building your emergency fund as a financial safety net.
And while we can’t count on the Reserve Bank to bring the cash rate down, homeowners can try to create a rate cut of their own by shopping around and switching to a better offer.
It might be your only option for home loan relief in 2026. And you don’t need to wait for a press conference to see if you could save – you can run a comparison or call a broker any day.
Focus on what you can control and see if there might be some savings hiding under your nose. You might even be able to do it zonked out, on the couch while you watch the Boxing Day Test eating leftovers.
Cost of living issues may be here to stay, for now – but with a good plan in place, it’s still possible to set yourself up for a brighter financial future.”
* David Koch is economic director of Compare The Market and a renowned finance commentator.
