Inflation spike reduces chance of a rate cut

Thursday 23 January 2014

Article by Mozo

Consumer prices leapt up 0.8 per cent last quarter, reducing the likelihood that there will be another RBA rate cut in February.  The rise in consumer prices is tied to the dropping value of the Australian dollar, which also jumped, by half a cent to 88.5c after the report was released.

Inflation spike reduces chance of a rate cut

"The likelihood of further rate cuts is unlikely fiver the surprisingly high inflation data," says Moody's analytics economist Katrina Ell. "The central bank will be hoping the exchange rate falls further to give the economy the boost it needs."

The two main costs of living driving up the consumer price index were the price of fruit and vegetables and domestic travel and accommodation.

For property owners, the spike in consumer costs lessens the chance that we will see even a small basis cut in February.

Belief that the RBA would lower interest rates further to bring down the cost of the Australian dollar has already trickled down to the fixed home loan rates of some major banks creating an opportunity for property investors in the form of lower and longer fixed rate loans.

Even as a pick up in inflation yesterday implied the rate cuts may be over, Westpac has followed NABs cut to fixed rate home loans by lopping a further five basis points off its best three year fixed rate product down to 5.14% including a 20 basis point "packaged" discount.

Property owners looking to make the most of the situation can compare three year fixed rates on offer here.

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