Interest rates could hit highest level since the GFC as house prices face ‘tipping point’
Struggling mortgage holders are likely facing a fifth interest rate hike this year after new data showed inflation accelerated more than expected last month.
The Australian Bureau of Statistics’ September consumer price index released Wednesday shows that inflation rose 4.3 per cent from a year earlier, higher than the 4 per cent posted in August.
The data is expected to push the Reserve Bank of Australia (RBA) to hike rates to an 18-year-high on November 3, the latest in a series of increases that has punished the budgets of mortgage holders and sent house prices into a nationwide spiral.
The RBA board signalled in September, after it hiked the cash rate to 4.6 per cent, that inflation remains the number one enemy, with the Middle East conflict pushing oil prices significantly higher than the bank expected.
The RBA’s goal is to keep annual consumer price inflation between 2 and 3 per cent.
A 25-basis-point hike next week would take the cash rate to 4.85 per cent, the highest since November 2008.
The board says it will continue to do what it considers necessary to control inflation, including increasing the cash rate target further if required.
“I’m not going to forecast where interest rates are going to go to,” Reserve Bank governor Michele Bullock told the media after the September rate hike. “If it turns out the restrictiveness is enough, maybe there do not need to be any more rises.”
A fifth rate increase this year would add roughly another $110 a month to repayments on a typical $600,000 mortgage, bringing the cumulative impact of this year’s hikes to around $550 a month, or $ 6600 over the year.
AMP chief economist Shane Oliver says the inflation data makes it much more likely the RBA will hike rates next week, increasing pressure on house prices.
Oliver says the market is now factoring in a 78 per cent chance of a hike on Melbourne Cup Day, up from 63 per cent before the latest data.
“The risk is that with more and more rate hikes, you could get to a tipping point,” he says. “So far the decline in house prices has been quite orderly.
Oliver says what will be troubling the RBA is that trimmed inflation, which strips out volatile increases in fuel and fresh produce, is also rising more than expected.
KPMG chief economist Dr Brendan Rynne also says the higher-than-expected inflation data has effectively locked in an RBA cash rate rise on Melbourne Cup Day.
He says inflation pressures are strengthening rather than easing, and if inflation does not begin to fall in coming months, another rate rise is likely in early 2027.
“It is clear pricing pressures in the Australian economy are growing, not weakening; and the upswing in inflation is catching the market off guard,” Rynne says.