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With the latest monthly Consumer Price Index (CPI) revealing a slight easing in inflation, could this inspire Australia’s central bank to pause the cash rate hiking cycle?
According to Australia’s peak statistical database, the Australian Bureau of Statistics (ABS), the monthly annual indicator rose 6.8 per cent in February, down on the 7.4 per cent figure recorded in January and further down on the 8.4 per cent figure recorded in December.
Some of the more significant contributors to February’s data were housing, up 9.9 per cent; food and non-alcoholic beverages (8 per cent); and transport (5.6 per cent), while rents continued to rise at an annual rate of 4.8 per cent, akin to last month’s result and up from the 4.1 per cent recorded in December.
Sally Tindall, research director at RateCity believes the data will “give them [the RBA] cover to take a breather.”
Despite the RBA enacting 10 consecutive cash rate increases, Ms Tindall indicated “the average household is probably still only up to their seventh or eighth rise.”
Opting to introduce an 11th consecutive rate hike to Australian hip pockets next Tuesday would take the cash rate to its highest point in 11 years — 3.85 per cent — and send additional monthly repayments for the average borrower with a $500,000 loan at the beginning of the rate hiking cycle last May to $1,059.
Ms Tindall stressed an additional rate rise would be a “line-ball call for the RBA,” as “the arguments for and against a hike are both strong.”
The central bank opting into a rate pause does not necessarily guarantee smooth sailing for Australian borrowers, with the financial expert warning that “household budgets that are already at the end of their tether might still tip into the red in the next couple of months even if the cash rate stays put in April.”
In the event the RBA does put rate hikes on hold, Ms Tindall explained that “borrowers should not assume that’s the end of the hikes,” despite the fact that inflation is now moving in the right direction.
This is due to the fact that even on its current trajectory, inflation is “unlikely to come all the way back down below 3 per cent without further intervention.”
She advised mortgage holders to plan for “at least one, potentially even two more RBA hikes in the next few months,” adding households may consider introducing their budget for these hikes into their mortgage in the event further cash rate increases fail to materialise.
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