RBA could hike rates in May amid inflation surge

Data released today by the Australian Bureau of Statistics shows headline inflation rose to 5.1% over the last 12 months, confirming Australians' cost of living concerns and increasing the likelihood of a pre-election interest rate hike.

On a quarterly basis, the Consumer Price Index (CPI) rose 2.1 per cent. ABS head of prices statistics, Michelle Marquardt notes that both the quarterly and annual rises were the largest since the introduction of the goods and services tax.

Price rises were recorded across a range of goods in March, but the spike was largely driven by rising costs for new dwellings (+5.7%), automotive fuel (+11.0%) and tertiary education (+6.3%).

"Continued shortages of building supplies and labour, heightened freight costs and ongoing strong demand contributed to price rises for newly built dwellings,” Marquardt said.

"The CPI's automotive fuel series reached a record level for the third consecutive quarter, with fuel price rises seen across all three months of the March quarter."

Households have also had to contend with a 2.8% jump in food prices, reflecting “high transport, fertiliser, packaging and ingredient costs, as well as COVID-related disruptions and herd restocking due to favourable weather.”

The food prices which saw the greatest increases were vegetables (+6.6 per cent), waters, soft drinks and juices (+5.6 per cent), fruit (+4.9 per cent) and beef (+7.6 per cent). 

RBA playing catch-up

The ABS data revealed that annual trimmed mean inflation, which smooths over atypical price fluctuations, increased to 3.7 per cent. As the RBA’s preferred measure of inflation, the result is perhaps the strongest sign yet that a rate hike is around the corner.

Compared to its central bank peers, the RBA has been reluctant to begin tightening monetary policy, weighing up surging prices against the strong employment and wages growth that lower rates would deliver.

But inflationary pressures, caused by supply chain disruptions and worsened by Russia’s invasion of Ukraine, have persisted for far longer than more dovish policy makers like RBA governor Philip Lowe would have liked.

This month, both the Bank of Canada and Reserve Bank of New Zealand lifted their policy rates by 50 basis points, and the US Federal Reserve has signalled a willingness to do the same when it next meets. 

With headline inflation set to rise above 6 per cent and the RBA potentially having to play catch-up with central banks around the world, some analysts believe the RBA might be forced to lift interest rates to 0.5 per cent in a single sitting. 

What will a rate hike mean for your mortgage?

Variable home loan rates tend to move in line with the cash rate, so any decision by the RBA will likely flow through to any mortgage holders that haven't fixed their loan.

The calculator below can provide an idea of how much borrowers’ repayments might increase under rate increases of various sizes.

Loan details

Rate change

Repayment change if rates go up

Fixed rates, on the other hand, have been trending upwards for some time now. While the big banks led the charge in reducing fixed rates back in 2020, increased funds costs have since forced them to backtrack — and the majority of lenders have followed suit.

Save for Unity Bank’s 1.84% p.a. (4.05% p.a. comparison rate*) offer for first home buyers, fixed rates below the 2% p.a. mark have all disappeared

In fact, when looking at 4-year terms, we see that the big banks have more than doubled fixed rates for their package loans since November 2020.

TermNovember 2020April 2022
ANZ2.29% (3.77% comp rate)Product discontinued
CommBank1.99% (3.66% comp rate)4.39% (4.45% comp rate)
NAB1.98% (3.69% comp rate)4.19% (4.41% comp rate)
Westpac1.99% (3.29% comp rate)4.49% (4.10% comp rate)

For more information about mortgage and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home loan comparisons on Mozo - last updated 13 August 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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