Skip to main content Skip to log on Skip to search Accessibility at CommBank

Inflation, AI and geopolitics to again take centre stage in 2026 - The CommBank View

Tariff wars and geopolitical shocks could have broken the global economy in 2025, but they didn’t. Globally, lower interest rates and the AI investment boom will support a cyclical upswing in 2026, led by the US. In Australia, economic momentum has also surprised on the upside, but this has brought with it higher inflation and higher interest rates.

5 February 2026

This handout image from the U.S. Navy shows Capt. Daniel Keeler, the commanding officer of the Nimitz-class aircraft carrier USS Abraham Lincoln, as he prepares to fly an MH-60R Sea Hawk helicopter in the Indian Ocean on Jan. 23, 2026.

Key takeaways

  • Australia faces renewed inflation pressure, with another cash rate increase expected in May. 
  • National home prices are forecast to rise by around 5% in 2026.
  • The AI investment boom will continue to shape investment, growth and global markets in 2026. 
  • Globally, bond yields have moved higher as markets adjust to heavier fiscal issuance and higher neutral rates.
  • Commodity prices, including oil and gold, remain volatile amid ongoing geopolitical uncertainty.

Australia enters 2026 with renewed momentum but given tight domestic constraints, this has seen inflation pressures re-emerge and interest rates rise, according to the latest quarterly CommBank View. Globally, growth has proven more resilient than expected, thanks to the AI investment boom, but many risks remain and these are centred on geopolitics.

After a year of surprising global resilience, growth held up despite trade tensions, geopolitical shocks and market volatility, supported by strong investment - particularly in artificial intelligence (AI).

According to CBA Chief Economist Luke Yeaman, 2025 “should have broken the global economy, but it didn’t. The impact of AI should not be undersold, and we expect this to continue and accelerate in 2026”. 

Australia has also seen stronger-than-expected economic momentum.  This has pushed demand beyond its speed limits, bringing inflation back into focus and forcing the Reserve Bank of Australia to hike interest rates. 

The global backdrop: geopolitics, markets and AI investment

Globally, growth has proven more resilient than expected, supported by strong investment and easing inflation pressures across most advanced economies.

Risks remain elevated. Geopolitical tensions remain high, particularly between the US and China, and this continues to shape energy, commodity and financial markets, keeping risk premiums high.

Bond yields have moved higher as markets adjust to a world of heavier fiscal issuance and structurally higher neutral rates, rather than a resurgence in global inflation. Commodity prices, including oil and gold, remain volatile, reflecting geopolitical uncertainty and supply-side risks.

AI investment remains a powerful global tailwind, driving capital expenditure in data centres, energy and enabling technologies, with early productivity gains emerging, particularly in the United States.

Australia: inflation, interest rates and economic limits

Australia enters 2026 in a different position.

Australia outperformed expectations in 2025, tracking CommBank’s “high road” scenario flagged in the previous View, where demand pushes against supply limits. 

Stronger than expected domestic momentum has pushed demand closer to supply limits, reigniting inflation pressures and forcing the Reserve Bank of Australia to reassert its inflation-fighting credentials.

Household incomes have risen, consumer spending has strengthened and private business investment has lifted, led by AI and energy infrastructure. The labour market has remained tighter than expected, while housing demand has re-accelerated.

National home prices are forecast to rise by around 5 per cent in 2026, supported by income growth, population pressures and tight supply — adding to demand and complicating the inflation outlook.

In February, the RBA lifted the cash rate to 3.85 per cent, with CommBank expecting a further increase in May.

“The RBA’s patience on inflation has run out,” said Belinda Allen, Head of Australian Economics. “There are now clear limits to how much above-target inflation the Bank is prepared to tolerate.”

Higher interest rates are expected to slow the economy through 2026, particularly via household spending, with GDP growth easing as inflation moves back towards target.

The year of limits

Australia faces the hard task of managing renewed inflation pressures and higher interest rates without stalling growth. As Yeaman notes, the challenge for policymakers now is not rebuilding momentum, but keeping it within the economy’s limits, and importantly, lifting those limits over time by boosting productivity. 

Read the full CommBank View here.

Related articles

Newsroom

For the latest news and announcements from Commonwealth Bank.

Explore

Things you should know

The information presented is an extract of a Global Economic and Markets Research (GEMR) Economic Insights report. GEMR is a business unit of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

This extract provides only a summary of the named report. Please use the link provided to access the full report, and view all relevant disclosures, analyst certifications and the independence statement.

The named report is not investment research and nor does it purport to make any recommendations. Rather, the named report is for informational purposes only and is not to be relied upon for any investment purposes.

This extract has been prepared without taking into account your objectives, financial situation (including your capacity to bear loss), knowledge, experience or needs. It is not to be construed as an act of solicitation, or an offer to buy or sell any financial products, or as a recommendation and/or investment advice. You should not act on the information contained in this extract or named report. To the extent that you choose to make any investment decision after reading this extract and/or named report you should not rely on it but consider its appropriateness and suitability to your own objectives, financial situation and needs, and, if appropriate, seek professional or independent financial advice, including tax and legal advice.