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- CPI comes in lower than expected but rate pause not out of the question
CPI comes in lower than expected but rate pause not out of the question
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Australia’s Monthly Consumer Price Index Indicator has dropped to an annual rate of 5.6 per cent for May, down from 6.8 per cent recorded in the previous month.
This is the smallest annual increase since April 2022 and well below market expectations at 6.1%.
However, CPI excluding volatile items and holiday travel did not make as much headway, clocking in at an annual rate of 6.4 per cent, marginally below April’s 6.5 per cent.
Cash rate hike not off the cards
With inflation moving in the right direction, the RBA has a plausible reason to hit pause on the cash rate hikes next Tuesday, should it wish to. However, another hike next week is still a live option. The Board’s concerns around sticky inflation in key sectors could be reason enough to press ahead with another hike.
If the RBA does increase the cash rate to 4.35 per cent, either on Tuesday or in coming months, it will take it to the highest level since November 2011.
RateCity.com.au analysis shows another 0.25 percentage point rise would mean the average borrower with a $500,000 loan at the start of the hikes could soon be paying a total of $1,211 more a month. That’s a 52 per cent increase.
Impact of a 0.25%-point hike to 4.35% cash rate: increase to monthly repayments
Loan size | 0.25% point increase to 4.35% | Total increase May 22-July 23 |
$500,000 | $77 | $1,211 |
$750,000 | $115 | $1,816 |
$1,000,000 | $153 | $2,422 |
Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.
RateCity.com.au research director, Sally Tindall, said: “CPI might be moving in the right direction but we’re not out of the woods.
“The Board is likely to have lingering concerns around underlying inflation and could very well press ahead with yet another cash rate hike on Tuesday,” she said.
“Predicting the RBA’s moves has become increasingly difficult to do as we get closer to the cash rate summit.
“If the Board remains resolute in its determination to get the job done, we could see the cash rate rise to 4.35 per cent.
“While there’s no certainty what the RBA will decide, borrowers should plan for at least two more hikes.
“There’s no question we’re nearing the top of this perilously high mountain, but it’s unlikely we’re quite there just yet,” she said.
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Product database updated 08 Sep, 2024
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