AI threat grows as inflation stays high

Australian inflation has come back hotter than expected, with CPI rising to 3.8% in the year to January 2026, stubbornly above where most economists expected it to fall. Consequently, the Reserve Bank is in no mood for rate cuts.

At the same time, Australia's annual GDP growth has slowed to its weakest level since the early 1990s recession (excluding the pandemic). That alone should raise eyebrows.

Growth is already fragile, households are stretched, and wage gains are lagging inflation. Now add a new layer of risk referred to as artificial intelligence, and we should start to be really concerned.

WiseTech Global, one of Australia's major tech employers, recently announced plans to cut around 2000 roles as it pivots toward AI-driven automation, and this is not an isolated case.

Globally, companies are reorganising around AI systems that can perform tasks once handled by accountants, analysts, marketers and administrators.

The macro risk is simple: if AI meaningfully reduces white-collar employment at the same time growth is already at multi-decade lows, incomes weaken. When this occurs, spending slows, which is how recessions start.

That's what makes the current environment so fragile: weak growth, persistent inflation limiting policy flexibility, and the possibility of structural job losses all colliding at once. In past slowdowns, the solution was relatively straightforward: cut interest rates, stimulate demand and get credit flowing again.

Cutting rates is not a simple solution.

If inflation remains stubborn, aggressive rate cuts risk reigniting price pressures, and if job losses are structural, driven by automation rather than a normal business cycle, lower rates won't magically bring those roles back. So, what do you do?

Ease policy and risk inflation flaring up again, or hold firm on rates and risk unemployment rising into already weak growth?

That is the dilemma, and it's what makes this potential downturn very different from past ones. But what's even more concerning is that Australia isn't having this conversation.

If we are to protect our future, however, there's only one path forward: recognise the change for what it is, adapt aggressively, and stop pretending AI is just a productivity tool.

It's shaping up to be the biggest economic force of our generation, and if we sleepwalk through it, the next recession won't just hurt the markets; it will have a serious impact on all Australians.

What are the best and worst-performing sectors this week?   

The best-performing sectors include Consumer Staples, up more than 7%, followed by Materials, up more than 6% and Information Technology, up more than 2%.

The worst-performing sectors include Consumer Discretionary, down more than 3%, followed by Utilities and Real Estate, both down more than 2%.

The best performing stocks in the ASX top 100 include Pilbara Minerals, up more than 25%, followed by Mineral Resources, up more than 17% and Woolworths Group, up more than 16%.

The worst-performing stocks include Worley Limited, down more than 12%, followed by Lendlease Group, down more than 10% and Qantas Airways, down more than 8%.

What's next for the Australian stock market? 

The All-Ordinaries Index has officially made a new all-time high, as it pushed through 9414 points to close Thursday more than 1% higher. With blue skies ahead, the conversation about the market rising to 10,000 points is no longer speculative; it's realistic.

What strengthens that case is seasonality. March and April are traditionally strong months for the All Ords, with April ranking alongside July as one of the best-performing months of the year. That historical tailwind adds fuel to an already bullish technical picture.

That said, fresh highs can attract short-term profit-taking. Some investors who have been waiting patiently may lock in gains, which could lead to a brief pullback. However, the base that formed just under the previous high throughout February at 9000 points, combined with consistent price activity near 9300 since August, now establishes two levels as the key defence zone. If buyers hold above the 9300 or 9000 point level, this breakout remains intact.

What's also encouraging is the composition of this move. This week's strength was driven largely by Consumer Staples and Materials. Notably, traditional growth leaders such as Financials and Energy didn't need to carry the market, which leaves room for rotation. With the index in new territory, capital could now flow back into growth sectors, adding another layer of upside momentum in the months ahead.

As the reporting season winds down, the market shifts from reacting to results to pricing in future growth, which often creates opportunities. With earnings now on the table, investors can identify companies that delivered strong financials, maintained healthy balance sheets, and showed positive momentum, positioning them ahead of the next earnings cycle in August.

The breakout is here. Now the focus shifts to whether buyers can defend it and build on it.

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