Australia’s hottest rate of inflation in 21 years means the Reserve Bank of Australia is a “near certainty” to hike the official cash rate 0.5 per cent on Tuesday, according to experts.
Last week, annual CPI reached 6.1 per cent in the June quarter, with markets now tipping the RBA to increase the cash rate 0.5 per cent in both August and September.
RateCity.com.au research director, Sally Tindall, said another hike would hurt borrowers.
“A cash rate hike of at least 0.5 percentage points now looks like a near certainty on Tuesday,” she said.
“Although borrowers knew rates wouldn’t stay at record lows forever, not many would have predicted such significant increases so soon.
“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.
“On top of rising grocery and petrol prices, that’s going to hurt.”
If the RBA lifts the official cash rate 0.5 per cent next week, and it’s passed on in full by lenders, borrowers would have seen interest rates rise 1.75 percentage points in four months.
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 $908 by February next year.
PropTrack Director Economic Research Cameron Kusher, said while inflation was running hot, the most recent data could have been worse.
“The 6.1 per cent year-on-year increase in CPI is high but not as high as many were anticipating,” he said.
“It is still the greatest year-on-year increase in inflation since June 2001 following the introduction of GST.”
Mr Kusher said high inflation mean interest rates were set to rise further, and property prices would continue to slow.
With more rate hikes predicted by most economists, Ms Tindall said “more pain is on the way” for borrowers.
“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,” she said.
Ms Tindall said Australia wasn’t the only country with an inflation problem with most countries facing elevated CPI readings.
“Central banks around the world are moving quickly to try to contain the inflation beast, with hefty hikes to official rates,” she said.
“The U.S. Federal Reserve, which is currently grappling with an even bigger inflation problem, is widely tipped to hike official rates by a further 0.75 percentage points later on Wednesday, taking the range to 2.25 per cent – 2.50 per cent.”
Ms Tindall said households were being forced to cut back to deal with rising prices.
“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,” she said.
“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.”
