Australia’s inflation rate is making headlines again, and it’s not good news for those with mortgages or looking to buy a home.
The Australian Bureau of Statistics’ (ABS) latest monthly consumer price index figures show that annual inflation was 4.0% in the 12 months to May, up from 3.6% in April.
This increase moves inflation further away from the Reserve Bank of Australia’s (RBA) target range of 2-3%.
Why is this important for homebuyers and homeowners?
Inflation is a key economic indicator that the RBA closely monitors when deciding on interest rates.
The RBA aims to keep inflation within a target range of 2-3% to ensure price stability and support sustainable economic growth. When inflation exceeds this target, it signals that prices for goods and services are rising faster than desired, which can erode purchasing power and savings.
The recent jump to 4.0% inflation indicates that prices are rising more than the RBA would like, suggesting that the central bank might need to take action to bring inflation back under control.
Other factors influencing interest rates
Besides inflation, the RBA also considers the unemployment rate and wages growth when deciding on interest rate adjustments.
The most recent ABS data shows the unemployment rate was 4.0% in May while annual wages growth was 4.1% during the March quarter.
The RBA has forecast the jobless rate to rise to around 4.3% by June 2025.
A sharper rise in unemployment could increase the likelihood of an RBA interest rate cut in the near term to help support the labour market.
Conversely, if job growth is too strong, it might lead to another rate hike to prevent a resurgence of inflation. That’s because a low unemployment rate typically leads to higher wages as businesses compete for a limited pool of workers. While this can be good news for workers, it also means more money washing around the economy, which can drive prices up further.
What do economists think?
Given the latest spike in inflation, some economists believe the RBA might be inclined to raise interest rates to cool down the economy.
Others think the central bank might hold off on rate hikes due to concerns about economic growth and consumer spending.
At the time of writing, all four major banks still believe the RBA’s next move will be down, although both ANZ and NAB have delayed their forecasts for the first cut to February 2025 and May 2025 respectively.
How can homeowners prepare for potential rate rises?
Given the uncertainty surrounding interest rates, you might want to take some proactive steps to prepare for potential rate rises.
Here are some practical tips:
● Consider banking the Stage 3 tax cuts: Instead of spending the extra money, you could put it into your mortgage.
● Review your home loan: It’s a good idea to regularly review your home loan to ensure you’re getting the best deal possible. With the help of a Shore Financial mortgage broker, you can compare different products and find a loan that offers a more competitive interest rate or better terms.
● Refinance if necessary: If your current mortgage isn’t meeting your needs or if you find a significantly better deal elsewhere, consider refinancing. Refinancing can help you lock in a lower interest rate, reduce your monthly repayments or even tap into home equity for other financial needs.
Looking to save money on your home loan? Shore Financial can help you refinance. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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