Beyond inflation: Australia's next economic challenge

Editorial Team
06:00pm August 19 2026

Westpac Chief Economist Luci Ellis (left) speaks with Sylvia Jeffreys (right) of The Pay Off podcast about the housing, infrastructure and workforce challenges shaping Australia's economic outlook. (Image: Supplied)

When it comes to taming inflation, the conversation often lands on demand. Is there too much spending? Too many buyers? Are wages too high?

 

According to Westpac Chief Economist Luci Ellis, there is another side of the story that deserves more attention.

 

Speaking on Sylvia Jeffreys' The Pay Off podcast, Ellis said many of Australia's biggest economic challenges point to a common issue: the country's ability to supply what people need, from homes and infrastructure to skilled workers.

 

"The answer is to say, well, how can we boost supply?" Ellis said.

 

This is the common thread that surfaced repeatedly throughout the conversation, from housing and migration to AI, workforce participation and productivity.

 

The supply vs demand balancing act

 

Inflation can emerge when demand outpaces the economy's capacity to meet it.

 

While the Reserve Bank of Australia (RBA) can cool demand through higher interest rates, Ellis suggested this is only one part of the inflation equation. 

 

Reflecting on the RBA's latest decision to leave rates on hold, Ellis said policymakers remain concerned about Australia's capacity to keep up with demand without generating further inflationary pressures.

 

“[The RBA] is worried though, because it takes the view that Australia can't grow very quickly. It thinks that we don't have very strong productivity growth,” she said. 

 

“They're quite downbeat about supply capacity in this country. And so they're worried about further inflation shocks.”

 

Ellis pointed to the rapid growth of data centres and artificial intelligence infrastructure, which the Reserve Bank recently highlighted as a source of demand for workers, materials and investment.

 

“[With] all these data centres that are being built… there's so much strain now on the manufacturers of semiconductors, that prices in these areas are going up and the data centres are siphoning workers and other resources away from other construction projects,” she said. 

 

For Ellis, it highlights a broader challenge. As Australia looks to build more homes, infrastructure and energy projects at the same time, competition for workers and resources is likely to intensify.

 

The workforce challenge

 

Housing is one of the clearest examples illustrating the tension between supply and demand, with Australia continuing to grapple with how quickly it can build homes for its growing population. 
 

Elli said increasing housing supply will require more skilled workers.

 

“Let's get some more tradies trained,” she said.

 

“Because if there's a supply constraint, and there's things you'd really like to be able to build, the answer is not to say, we are poor and empty-pocketed and therefore can't build these things.”

 

Ellis said the need for more skilled tradespeople is unlikely to disappear as artificial intelligence becomes more widespread, arguing some industries remain fundamentally dependent on people. 
 

"ChatGPT can't build houses," she said. 

 

"To lay a brick, you kind of need a person there."

 

With Australia's participation rate already at record highs, Ellis suggested the challenge may be less about getting people into work and more about ensuring enough workers are being trained for the jobs in greatest demand.

 

“We're wanting things that we haven't trained enough people for,” she said. 

 

“The amount of skilled workers that we need can be solved both through training and giving opportunities to people who are already here, as well as [by] bringing people in.”

 

An untapped opportunity

 

Ellis also pointed to an opportunity that could help ease workforce shortages: increasing female participation in construction. 

 

Female workforce participation has climbed steadily in recent decades and has helped support Australia's labour force growth. Ellis believes there are lessons construction could learn from industries such as mining, which have invested heavily in attracting and retaining women.

 

"[Construction] is also the industry that has the lowest share of female employment. Even mining does a lot better," she said. 
 

For Ellis, attracting more women into construction is about more than improving gender representation. It is also a practical way to expand the workforce in an industry facing persistent labour shortages.

 

“If you have more women in the workforce, that's more hours, that's more time,” Ellis said.

 

A challenge beyond interest rates

 

While inflation has eased and the RBA held rates steady this month, Ellis suggested Australia's long-term economic challenge extends beyond monetary policy.

 

For Ellis, the broader conversation about Australia's capacity to grow will become increasingly important as the country seeks to tackle housing shortages, deliver major infrastructure projects and embrace new technologies. Success will depend not only on managing demand, but also on ensuring Australia has the workers, skills and capacity needed to meet it.

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