Economist Warren Hogan hasn’t held back in his criticism of the Reserve Bank of Australia, describing the central bank’s response to inflation as an “unforgivable mistake.” Hogan’s comments have reignited debate over whether the RBA acted too late to curb rising prices, and whether everyday Australians are paying the price as a result.

Inflation Still Above Target

According to the latest Australian Bureau of Statistics (ABS) data, headline inflation measured by the Consumer Price Index (CPI) rose 3.8% in the year to December 2025, up from 3.4% the month before. That puts inflation stubbornly above the RBA’s long‑run target band of 2–3%. Housing costs were the largest contributor, increasing 5.5%, followed by food (+3.4%) and recreation (+4.4%), illustrating that price pressures are broad‑based across everyday household expenses.

Underlying inflation also remains elevated at 3.3%, meaning that persistent core price pressures are unlikely to disappear quickly.

These figures are not just numbers on a page: for Australian households, they translate into higher costs for essentials like rent, food, utility bills and services, the very items that make up most household budgets.

Interest Rates: Tightening Begins

Responding to these inflation dynamics, the RBA raised its official cash rate to 3.85% in early 2026- its first hike since late 2023- in a bid to cool price pressures and slow demand in the economy.

For mortgage holders, even small increases in the cash rate can mean hundreds of extra dollars in monthly repayments. With the Australian property market continuing to defy expectations, affordability pressures remain entrenched.

Hogan’s Critique: Too Little, Too Late?

Hogan argues that by being slow to start tightening monetary policy, the RBA allowed inflationary pressures to become more entrenched, forcing larger and more painful rate increases later. If inflation had been addressed earlier, the theory goes, the RBA may have avoided needing to raise rates as high or as fast, reducing the shock to consumers and borrowers.

This criticism taps into a broader concern: inflation expectations remain elevated. Surveys suggest Australians expected inflation of around 5.2% in mid‑February 2026, highlighting how persistent price rises can influence household behaviour and wage demands.

What It Means for Everyday Australians

So what does all this mean for you?

Higher living costs: With inflation above target, everyday items are more expensive. Housing, groceries and services are squeezing budgets.

Rising borrowing costs: Higher interest rates mean mortgages, car loans and credit card repayments are more expensive, reducing disposable income.

Uncertain policy outlook: The RBA faces a tough balancing act: tighten further to tame inflation without pushing the economy into recession, or risk inflation expectations becoming entrenched and harder to reduce.

Moving Forward

For households, financial resilience is crucial. Strategies like fixing mortgage rates to lock in costs, prioritising savings and cutting discretionary spending can help mitigate risk. For policymakers, Hogan’s critique may serve as a cautionary tale about acting decisively before inflation becomes too entrenched.

What’s clear is that inflation and interest rate decisions are not abstract economic concepts, they affect the cost of living, borrowing costs, and financial security for millions of Australians. The coming months will be critical as the RBA navigates these challenges amid ongoing price pressures and economic uncertainty.

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