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Inflation eases, but rate rise threat lingers
Australia’s inflation has slowed following a 12-month high, but experts remain divided on whether the reduction is enough to protect households from higher interest rates.
The Australian Bureau of Statistics revealed that year-on-year inflation fell to 3.4 per cent in November, down from 3.8 per cent in October. Trimmed mean inflation, which strips out outlying items, eased slightly to 3.2 per cent from 3.3 per cent.
It comes as some of the nation’s biggest banks have flagged the likelihood of future cash rate increases.
The Commonwealth Bank of Australia in mid-December confirmed that it was expecting a 25 basis point rise in the cash rate to 3.85 per cent at the February board meeting of the Reserve Bank of Australia (RBA). At the same time, National Australia Bank (NAB) announced that it was predicting a more aggressive cycle, with two hikes in February and May taking the cash rate to 4.1 per cent.
Economists remain split on whether the latest inflation figures will be enough to halt rate rises.
Oxford Economics Australia’s Harry Murphy Cruise, head of economic research and global trade, said the data should be enough for the RBA to hold rates.
"That data lands at the end of the month, with 3.2 per cent being the magic number for trimmed mean inflation. Anything above that will warrant a hike when the RBA board next meets in early February. Anything at or below should be enough for the board to hold rates steady. We expect the latter, sparing mortgage holders an unwelcome hike to start the year."
Yet Canstar warned that a rate rise “is by no means off the cards”. Data insights director Sally Tindall urged borrowers to prepare.
"The possibility of a rate hike is still very much a live one and borrowers should take the time to get ahead of the game while they can. Work out what your repayments would look like if the cash rate rises and make sure your budget can handle it."
A 0.25 per cent increase would push monthly repayments up by around $90 on a $600,000 loan and $150 on a $1 million loan.