RBA rate hike on cards after inflation shock

RBA Governor Michele Bullock may have a surprise in store. Picture: Philip Gostelow

ANALYSIS

Hold onto your hats because the RBA might just be poised to shock us with a rate hike at its September board meeting.

Inflation is ticking up, unemployment remains low and households seem to be spending more.

Meanwhile, we are beginning to hear the rumblings of a recently dormant price volcano sitting beneath the property market.

But wait, the RBA board never shocks us, they are too cautious and conservative, right?

That is sometimes true, but usually concerning their attitude towards cuts.

There have been plenty of shocks on the flip side. In July, journalists sat ready to hit publish on a story about an RBA cut, so certain were we that it was the only viable outcome. But they shocked us by holding.

Back in 2021, then RBA governor Philip Lowe suggested the cash rate would remain at 0.1 per cent until 2024 at least.

MORE:Inflation shock ‘may force’ RBA response

Former RBA governor Philip Lowe. Picture: Max Mason-Hubers

Fast forward to 2024 and there had been 13 rate increases instead. That was a shock, although one that played out over a longer time.

During that period, borrowers were shocked, not just by consecutive months of rate rises, but by consecutive double rate increases of 0.50 per cent. Four months in a row, in fact.

So the RBA isn’t always cautious, conservative and gradual.

Finder’s RBA rate survey revealed a number of economists believed the fight against inflation was not done yet, especially after the August CPI rose to 3 per cent, up from 2.8 per cent the month prior and 1.9 per cent the month before that.

“Headline CPI has reached a one-year high,” said Stella Huangfu of University of Sydney. “Monthly CPI excluding volatile items and holiday travel has also climbed to its highest level in a year.”

MORE:Two Aus banks slash rates ahead of RBA call

Michael Yardney of Metropole Property Strategists, pointed to recent growth signs.

“Inflation has eased, but isn’t out of the woods as economic growth showing signs of strength,” he said. “GDP rose by 0.6 per cent in the June quarter, helped by stronger household spending. This suggests that the demand side is picking up, which could reignite inflationary pressures if interest rates are dropped too soon.”

Federal Treasurer Jim Chalmers. Picture: Glenn Campbell

Peter Boehm of Pathfinder Consulting suggested the “RBA’s last rate cut was premature” and noted that “the direction of inflation is upwards, fuelled by high levels of government spending and expensive power due to significantly high domestic and commercial power prices.”

Stephen Miller of GSFM said “inflation is still a little sticky. Unit labour costs are elevated. The labour market has been resilient.”

MORE:Alarming shift in first-home buyer age across Aus

The other somewhat left field consideration is that the October beginning of the Home Guarantee stimulus boost for first-home buyers could act as a rate cut in its own right by boosting borrowing power and putting heat into the property market.

“Inflation is not yet under control, and the government’s initiative to ease the conditions on the first homebuyer mortgage insurance scheme is going to cause another surge in prices,” Noel Whittaker of QUT said. “We don’t need to add increased rates to this heady mix.”

LJ Hooker Group research analyst Mathew Tiller said that recent cuts have already lifted property market activity.

“Demand is up while listings remain tight, keeping prices moving higher,” he said.

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