Fifth rate hike looms as inflation jumps

Figures by the Australian Bureau of Statistics (ABS) showed that headline inflation jumped to 4 per cent in August, up from 3.5 per cent in July.

Despite the trimmed mean inflation remaining steady at 3.6 per cent for the third month in a row, borrowers are not out of the woods with another potential rate hike at the RBA’s November meeting.

According to ABS head of price statistics Rachael McCririck, housing was the largest contributor to annual inflation in August, rising by 5.7 per cent.

“Annual inflation of 5.7 per cent for Housing reflected rising costs for both New dwellings and Electricity. New dwelling prices rose 5.4 per cent in the 12 months to August as builders passed on higher costs for materials and labour,” McCririck said.

Transport was the second-largest contributor, rising 5.6 per cent as automotive fuel prices surged 14.8 per cent over the month, driven by higher global oil prices and the unwinding of the remaining federal fuel excise relief.

The figures came a day after the RBA raised interest rates for the fourth time, as it seeks to bring inflation back under control and prevent persistent price pressures from becoming entrenched.

The board lifted the cash rate by 0.25 percentage points to 4.6 per cent, its highest level since 2011.

According to PRD Chief Economist Dr Diaswati Mardiasmo, the high inflation figures justify yesterday’s rate hike.

“It also means that there is a higher chance of a 5th cash rate hike in 2026,” Mardiasmo told REB.

Earlier on Wednesday, 30 September, Westpac revised its rate prediction, joining ANZ in forecasting another rate rise in November.

A fifth hike would take the official cash rate to 4.85 per cent, its highest level since rates began to be cut during the global financial crisis in 2008.

Westpac chief economist Luci Ellis said another rate hike was a relatively easy step for the RBA as oil prices rebound and concerns grow that upside inflation risks are materialising.

“Judging by today’s rhetoric, a November hike is now the base case, absent a lasting resolution of the Middle East conflict beforehand, or some other event that significantly lowers the outlook for energy-related costs in Australia,” Ellis said.

“The bar for hikes beyond that is much higher, given the cumulative rise in interest rates, and noting that the labour market is easing and the housing market will likely weaken further.”

Mardiasmo said the combination of the rate hike and CPI figures could create a two-sided market dynamic.

Mardiasmo said some buyers may move more aggressively before further rate rises erode borrowing power, while others may hold back in anticipation of further price falls.

“I think yesterday's and today's figures are going to send the market a bit topsy-turvy because the combination and possibilities of how it will impact the market can make your head spin.”

According to Mardiasmo, the current environment has been unusual, with the RBA departing from its typical timing around inflation data and the federal Budget.

“Everything that the RBA is doing right now is out of the ordinary, due to global uncertainties and geopolitical matters flowing into our economy. “

She said that rather than trying to follow the RBA, inflation figures and market predictions or patterns, buyers and sellers should focus on their own personal situation.

“Times like this is crucial to go back to basics. Data. Local, specific market data. And your own financial conditions and life needs.”

Similarly, she said that real estate agents needed to focus on the local, specific market data and realities, rather than the headlines.

“Advise your clients based on this, and talk to them about their own realities, rather than following trends or predictions.