Homeowners are on edge to see if rates will rise in August, while others fear an increase could tip Australia into a recession.
Nervous homeowners are awaiting the August decision from the Reserve Bank of Australia (RBA) with warnings that an interest rate rise could push the Australian economy into a recession.
Despite fears that the latest inflation data could make an interest rate hike inevitable, last week it had many breathing a sigh of relief.
It showed Australia’s annual rate of inflation rose to 3.8 per cent, up from 3.6 per cent at the start of the year – a figure that wasn’t higher than the RBA’s own forecast.
Interest rates currently sit at 4.35 per cent and most economists are predicting they will remain on hold on Tuesday.
The June consumer price index should “put to rest the tired notion that the RBA should lift rates – an act that would do nothing but tempt a recession”, said Deloitte Access economics partner Stephen Smith.
He said it showed that inflation was “not running rampant” but instead the core annual inflation figure had fallen for the sixth consecutive quarter — reaching its lowest rate in two years.
“The factors driving Australian inflation at the moment cannot be fixed through interest rate hikes. Namely, rents due to housing supply constraints, fruit and other food prices due to weather, and insurance premiums due to previous increases in the cost of claims and weather events,” he noted.
“Higher rates only fight inflation on the demand side by subduing spending. Australia’s economy is already weak with investment and consumption in the economy too low, and with business insolvencies escalating.
“One thing is clear, the Australian economy is not overheating.
“So, what would the point of lifting rates be? It would not reap the reward of bringing inflation to target any quicker.
“It would only serve to damage the economy by erasing the benefits of the Stage 3 tax cuts – currently cushioning the impact on low- and middle-income households — and recent real wage growth, threatening what could otherwise be an opportunity to pivot to investment and growth and encourage a steady economic recovery in 2024-25.”
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