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By Pete Wargent

RBA explains rates peak

The RBA Governor unveiled a tidy speech in Sydney, explaining why interest rates are on pause (and why rates will likely peak at a lower level in Australia than in some other countries).
Domestic demand has already been hammered by the rate hikes delivered to date.
Household Consumption Growth
Meanwhile, good prices are set to fall in Australia as shipping rates revert lower.
Global Container Shipping Rates

Governor Lowe pointed out that wages growth is not 5-6 per cent in Australia as in some other countries, it's only a meagre 3½ per cent.

And, importantly, the reaction function is totally different because most mortgages are on variable rates (or short-term fixed rates).

Mortgage rates for households have lifted more quickly, and consumer sentiment has been absolutely battered already.

Consumer Sentiment Average Since 1980

The proliferation of variable rate debt is actually a very useful feature of Australia's economy, allowing the policy to be adjusted more effectively.

As such, markets are pricing no further interest rate hikes (and steady declines over the next few years).

The one area which is expected to see ongoing inflation is rents, due to a massive housing shortage in the large capital cities.

However, interest rate hikes would not help here - actually, the opposite - and household sizes may well increase again over time.

David Scutt

Very few people wanted to utilize share housing during the lockdowns, but this trend may now have passed.

About Pete Wargent Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog
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