Australian homeowners could soon be hit with more mortgage pain after this week’s all-important inflation reading, with Treasurer Jim Chalmers warning that Wednesday’s figures are likely to show “persistent” price pressures in the economy .
Speaking to Sky’s Weekend Business on Sunday, Mr Chalmers said that while inflation had come down “quite significantly” from peaks in 2022, he expected the June quarter consumer price index to show that rising inflation continues to ripple through the economy .
“Inflation does not smooth out in a straight line,” he said.
“She crawls and crawls a little.”
The treasurer added that he was “confident” that prices would continue to “moderate” after Wednesday’s reading and decrease over time.
Fears of another rate hike and the negative effect of the flow of economic activity have escalated following a hotter-than-expected CPI print on June 26.
The ABS reported that monthly CPI had risen to 4 percent in the year to May, from 3.6 percent in April.
Economists had expected a more modest increase of 3.8 percent.
Some economists have predicted the Reserve Bank of Australia will raise the cash rate again if Wednesday’s CPI shows continued inflation.
The RBA’s cash rate serves as a benchmark for interest rates across the economy, with banks generally quick to pass on rate rises to mortgage holders. This would reduce the spending power of millions of Australians as they divert more of their income to service a larger debt load.
Deloitte warned last week another rate hike could be “the straw on the camel’s back” given pre-existing weaknesses in the economy.
“Consumer and business confidence remain low, household budgets have been decimated by widespread cost-of-living pressures and insolvency has increased,” the consultancy’s latest Business Outlook said.
“In that environment, Australians and Australian businesses looked forward to July 1 as the trigger for tax cuts and other relief.
“Having the RBA Board grab that relief as soon as it arrived would be a powerful blow.”
In its Week Ahead report, the Commonwealth Bank said the “balance of probabilities” would shift to another interest rate hike if inflation rose 1.1 percent or more for the quarter.
“In our view, the prospect of a hike in August depends on the RBA’s preferred measure of core inflation, the trimmed average,” the bank said.
“Our forecast for next week is for average trimmed inflation to increase by 0.9 percent/quarter and 3.9 percent/year.
“In our view, this would give the RBA enough room to leave rates on hold, despite being slightly above their implied forecast of 0.8 per cent/quarter.
“We see a 1 percent/quarter print to be in the ‘grey area’ where they could hold or could grow depending on the details of the component.
“A print of 1.1 percent/quarter or higher would test the Board’s resolve and shift the balance of probabilities to an interest rate hike.”
Mr Chalmers urged the government’s moves to reduce inflation, citing its twin budget surpluses and spending discipline.
He also said he expected the “big drivers” of Wednesday’s reading to include insurance, rent and gas prices.
“None of these factors have anything to do with government spending,” he said.
As Australia nears a rate hike, other world economies are moving towards rate cuts as inflation cools after the shocks of the Covid and Ukraine war.
The Bank of Canada cut rates this week and the US Federal Reserve is expected to cut rates in September.
The RBA board will meet on August 5 and 6, where it will decide on any changes to the cash rate.
Wednesday’s inflation squeeze could also affect the outcome of the upcoming federal election.
A new RedBridge poll shows the Coalition has edged ahead of the government on a two-party preferred basis.
Peter Dutton’s LNP now leads Labor by 51.5 per cent to 48.5 per cent.
In April, the same polling company showed the government ahead 52 percent to 48 percent.
The shift has come as low- and middle-income voters shift into the Coalition camp in response to the country’s ongoing cost-of-living crisis, the company said.