PAIN CONTINUES AS PRESSURES KEEP BITING

Just when people were starting to believe the inflation dragon was running out of puff, it is breathing fire again with consumer prices blowing out at their fastest pace for 32 years.

Some economists speculated the Reserve Bank of Australia (RBA) could keep official interest rates on hold at its first meeting of the year on Tuesday, February 7, but that forecast went up in flames as the Australian Bureau of Statistics reported inflation lifted to 7.8 per cent in the year to December, 2021, up from 7.3 per cent in September.

Financial markets dramatically increased the probability of a cash rate increase by the RBA to 90 per cent, from 60 per cent leading into the latest official consumer price report. The stronger-than-anticipated acceleration in annual inflation was driven by a near nine per cent jump in household power bills and a rise in domestic travel and accommodation.

Asia-Pacific economist Callam Pickering said: “The December figures were nothing short of nasty, with cost-ofliving pressures set to provide considerable hardship to households across the nation this year. Consumer prices are rising at their fastest pace since 1990. That, of course, marked our nation’s last non-pandemic recession. It’s a useful reminder of what is at stake if we cannot control inflation soon.”

Commonwealth Bank economist Gareth Aird said the latest inflation data was the “smoking gun” for a ninth straight rate hike from 3.1 per cent to 3.35 per cent on Tuesday, while Citi chief economist Josh Williamson said “stubbornly high inflation” would likely require rates to reach 3.85 per cent by April.

With mortgage holders facing the likelihood of higher interest rates, Treasurer Jim Chalmers cannot rule out the possibility that the increase in household power bills would also accelerate further in early 2023.

But Dr Chalmers said “unacceptably high” inflation was in line with October budget forecasts, and he remains optimistic consumer price growth will moderate through this year.

With many thousands of borrowers soon to come off long term fixed rates, our broking team at Bell Partners has been flat out talking to people looking to refinance. Please reach out if you need support.

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