Will there be another double hike in interest rates from the RBA next week?
With annual inflation rising to 6.1 per cent today, this is almost certain.
In fact, if the RBA increases the cash rate by 0.50 percentage points on Tuesday, the average owner-occupier with $500,000 debt and 25 years remaining will see their monthly repayments rise by $140.
Here's what happened to inflation
Inflation surged 6.1 per cent over the 12 months to the June quarter, with the Consumer Price Index (CPI) rising 1.8 per cent in the June 2022 quarter according to the latest inflation data from the Australian Bureau of Statistics (ABS).
This increase was in line with the general market expectation and the most significant price rises were in new dwelling purchases by owner-occupiers (+5.6 per cent), automotive fuel (+4.2 per cent) and furniture (+7.0 per cent).
NAB Economist Taylor Nugent explains...
Inflation clearly is running hot with trimmed mean inflation at its highest quarterly rate since 1990.
This should keep the pressure on the RBA to continue to move quickly towards a more neutral setting of policy.
NAB sees the RBA moving by 50bps in August and September.
Within the details there is a clear broadening out of inflation into services amid the tight domestic labour market backdrop, pointing to the risk the RBA feels compelled to move policy more explicitly into restrictive territory as it seeks to chart a credible path back to 2-3% inflation.
What does the interest rate increase mean for borrowers?
The less likely option of a 0.25 percentage point increase would see the same borrower’s repayments rise by $70 in August.
Ms Sally Tindall, Research Director for RateCity.com.au commented:
“A cash rate hike of at least 0.50 percentage points now looks like a near certainty next Tuesday.
Although borrowers knew rates wouldn’t stay at record lows forever, not many would have predicted such significant increases so soon."
Ms Tindall further said:
“If there is another double hike, the average borrower with a $500,0000 loan could be paying $472 more a month than they were in April.
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On top of rising grocery and petrol prices, that’s going to hurt.
More pain is on the way for the one-in-three households with a home loan."
The rate hikes are not likely to end next month with inflation expected to continue to climb until the end of the year.
ANZ is now forecasting the cash rate could hit 3.35 per cent by November, while Westpac is forecasting the cash rate will hit this mark in February 2023.
If Westpac’s forecast is realised, a borrower with a $500,000 loan balance, before the hikes began, could see their monthly repayments rise, in total, by $908 by February next year.
Ms Tindall further explained:
"The RBA has warned it plans to steadily increase rates to try to rein in inflation, with some economists now forecasting a cash rate of 3.35 per cent within months."
This is happening worldwide
According to Ms Tindall,
"Australia isn’t the only country with an inflation problem. Central banks around the world are moving quickly to try to contain the inflation beast, with hefty hikes to official rates."
Ms Tindall said:
“The U.S. Federal Reserve, which is currently grappling with an even bigger inflation problem, is widely tipped to hike official rates by another 0.75 percentage points later on Wednesday, taking the range to 2.25 per cent – 2.50 per cent.
Every other week families are finding their grocery bills are growing, the car is more expensive to fill up and the cost of their takeaway coffee keeps hitting record highs.
In the face of rising costs on all fronts, many families will need to start making significant cutbacks.
People should really start putting pen to paper to come up with a financial strategy to get them through the next 12 months.
For some households, it’ll be a few nips and tucks to their budgets, but for others, it’ll involve making tough decisions.”
Source for charts and commentary: RateCity.com.au.
