Key Points
- It's likely the RBA will raise interest rates in February
- But inflation looks to be coming down around the world
- One expert is hopeful there won't be any more rate hikes after February
Another interest rate rise in February is now more likely after higher-than-expected inflation figures were revealed this week — but there's hope it will be the last one this year.
AMP Capital chief economist Shane Oliver said inflation figures had made it , possibly by 0.25 percentage points at its next meeting.
He said this would add an extra $80 a month to those with an average mortgage of $500,000, equivalent to an extra $900 a year.
Since May last year when the RBA first began raising the cash rate from a record low of 0.1 per cent, interest rates have increased by 3 percentage points, and Mr Oliver said this had increased mortgage payments by around $12,000 a year.
"And that's someone with a $500,000 mortgage. In Sydney, the mortgages are much higher than that," he told SBS News.
"Some [people's] mortgage payment increases would be running at $20,000 per annum more than they were a year ago."
Source: RateCity Source: SBS News
He said there was clear evidence were starting to ease, making it less likely the RBA would keep raising rates.
He said inflation in the United States had peaked in the middle of last year at 9.1 per cent and had now come down to around 6 per cent.
"I reckon we're about - we're at the peak and we're going to see a fall in inflation through this year," he said.
The price of goods globally had also come down as more supply has become available, in contrast to last year when prices were rising, Mr Oliver said.
He said the cost of shipping goods around the world had also returned to pre-pandemic levels, and commodity prices for resources like oil had fallen.
"A lot of the cost pressures are starting to decline globally," he said.
What is driving inflation?
Mr Oliver noted a big contribution to inflation in Australia last quarter was higher travel and accommodation costs, and this was unlikely to be repeated.
The festive season contributed to stronger-than-expected inflation in the December quarter, with prices for domestic holiday travel and accommodation rising by 13.3 per cent, and international holiday travel and accommodation by 7.6 per cent.
"It reflects the huge re-opening surge of tourism at a time when the travel industry was capacity constrained," he said.
"Capacity will return to the travel industry and Australians will balk at paying those exorbitant prices, so I don't think we're going to see an ongoing surge in travel costs like we've had."
Even if travel costs stay high, they won't continue to contribute to inflation unless prices continue to rise.
The festive season has contributed to strong demand for travel, pushing up prices. Source: Getty / Mark Evans
He said if inflation started to come down this year, it was possible rates could even come down by the end of the year.
"I think they'll probably be coming down - maybe at the end of the year but certainly in 2024."
Mr Oliver said once people started to see their supermarket bills level off and weaker retail sales numbers, that would be a sign inflation was close to its peak with the potential for future rate cuts down the track.
But this could be derailed if wages increased dramatically, which could lock in higher inflation.
It's hoped an expected rate hike in February will be the last for this year. Source: AAP
Will interest rates ever return to record lows?
While rate cuts would be good news for homeowners, Mr Oliver said it was unlikely interest rates would get back to the levels they reached during the COVID-19 pandemic.
"We might come down 50 basis points or 0.5 per cent or something, but I don't think we're going to see interest rates go back to anywhere near the lows that we saw a year ago," he said.
The Australian Bureau of Statistics revealed on Wednesday that inflation in the December quarter rose 7.8 per cent annually - the highest increase to the consumer price index since 1990.
Underlying inflation, which excludes large price rises and falls, lifted 6.9 per cent annually.
Treasurer Jim Chalmers on Wednesday said inflation was unacceptably high, but either at or close to its peak.
"Inflation was the defining challenge in our economy in 2022 and it will be a defining challenge in our economy in 2023," he told reporters in Canberra.
Mr Chalmers was not surprised to see electricity prices surging 8.6 per cent over the three months, and said the government's price caps and other interventions would keep a lid on power prices going forwards.
ABS head of prices statistics Michelle Marquardt said the unwinding of Western Australia's $400 electricity credit also pushed up the figure for the December quarter.
- Additional reporting by AAP
