The Inflation Tax · Part 4 · Final

Who Pays for Inflation?

Five rate rises in 2026, driven by oil, an AI boom and government deficits. So why do mortgage holders pay the bill? Our verdict.

By Mark Trimboli · 3 November 2026

Opinion and general information only, not financial advice. Scott, Charlene and FMA are fictional.

"It's going to make people feel like it's a recession"

On Melbourne Cup Day, 3 November 2026, the Reserve Bank of Australia (RBA) lifted the cash rate for the fifth time this year, to 4.85%, an 18-year high. Even the RBA's own board was split, six votes to three.

On Ramsay Avenue in Modbury, Scott and Charlene did the sums again. Since January, five rate rises have added about $406 a month to their $500,000 home loan, assuming Fat Margin Australia (FMA) passes each one on in full.

Example figures: principal and interest, 30 years, rate rising from 5.6% to 6.85%.

Then they heard the RBA governor, Michele Bullock: "It is going to make people feel like it's a recession because they feel poorer" (SMH, 3 Nov 2026).

This series has followed one family through a year of rate rises. In Part 1 we saw mortgage holders carry the load. In Part 2 we saw how banks gain from timing and loyalty. In Part 3 we found a fairer dial on paper.

So here's the final question: is it fair that mortgage holders keep paying for inflation they didn't cause?

The short answer

Three things show why.

1. The causes aren't Scott and Charlene

Look at what's actually pushing prices up in 2026:

• Oil. In August the RBA expected oil to fall to around US$76 a barrel. It's now about US$104, driven by the war in the Middle East (SMH). Fuel prices rose 24% in the year to September, and transport alone made up 1 percentage point of the 4.3% inflation rate (The Guardian, 2 Nov 2026).
• The AI building boom. Investment in data centres and servers is expected to grow 12% this year. It's competing for the same builders and materials as housing, and pushing up the price of technology (SMH).

Neither of these was caused by a Modbury family with a mortgage. And a rate rise can't lower the price of oil or slow a global AI race. What it can do is squeeze household spending hard enough to make room for those pressures.

As independent economist Chris Richardson put it: "we know you can't fix supply fast, and so somebody somewhere has to be 'stopped' from spending money" (The Guardian, 2 Nov 2026).

Right now, that somebody is Scott and Charlene.

2. Government spending adds to the pressure, and mortgage holders pay for it

Here's the plain-English version. When the government spends more than it collects in taxes, it pumps extra money into the economy. That boosts demand beyond what businesses can supply, and prices rise.

When the government spends more than it collects in taxes, the shortfall is called a budget deficit. (If it collects more than it spends, that's a surplus.) Australia's deficit is getting bigger:

Source: budget papers, as reported by The Guardian, 2 Nov 2026.

Deloitte Access Economics partner Stephen Smith offers a simple rule: "if you are running a budget deficit, then you are adding demand into the economy… If you are running a surplus, you are taking demand out" (The Guardian, 2 Nov 2026).

Here's why that matters to Scott and Charlene. When the government adds demand, the RBA has to push harder on the brake it controls: interest rates. The Centre for Independent Studies made the point bluntly in 2024: higher rates "shift inflation costs onto mortgage holders, renters, and businesses while governments continue expanding spending" (Centre for Independent Studies, Robert Carling, Sep 2024).

To be fair, it's complicated. Much of the extra spending is in defence, the NDIS and health, which are hard to cut. And The Guardian notes the oil shock has played an outsized role in this year's inflation jump. But a growing deficit is still the opposite of help.

3. The second dial is promised, not yet used

After the rate rise, Treasurer Jim Chalmers said the government would "play a helpful role", with more savings in the mid-year budget update due in early December (SMH).

That's welcome. But a promise isn't a dial. Spending restraint only helps if it's delivered, and only if it's big enough to take real pressure off prices. Until then, the RBA is still fighting inflation with one hand.

Here's where each dial from this series stands today:

Only one dial is actually turning, and it's the one that lands on mortgage holders. As The Guardian put it, "so far, it's been the RBA which has been using its one lever and hiking rates to stop households from spending."

The verdict

Rate rises aren't going away, and they shouldn't. The cash rate is the baseline price of money (Part 0), and the RBA needs it.

But relying on it alone is outdated and unfair. Inflation in 2026 is being driven by oil, an AI boom and widening deficits. The bill is being paid by roughly one in three households, while lenders gain on timing and loyalty. Australians may well need to sacrifice to bring inflation down. But a fair system would share the load, and make sure that sacrifice isn't lost on the people making it:

1. Everyone chips in, and gets it back. Instead of extra interest flowing to lenders, the cost of cooling spending would come back to households in some form: in their own super, through a super dial, or as cheaper services, through a tax returned as services.
2. Banks don't get rich from the fight. A national sacrifice shouldn't be a windfall for lenders. Banks should pass on cuts as fast as they passed on rises, and stop charging loyal customers more.
3. The government delivers real spending restraint, not just promises, so the RBA doesn't have to brake so hard on mortgage holders.

The banks' part is worth watching. Markets expect the RBA to start cutting rates from early 2028 (SMH). When it does, Scott and Charlene will be checking whether FMA moves as fast going down as it did going up.

New to the series? Start here with Part 0: The Price of Money.

This article is general information and the author's opinion. It doesn't consider your personal circumstances. The author is not a licensed financial adviser. Before making financial decisions, speak with a licensed professional. Figures are illustrative.