Fresh economic data from the Australian Bureau of Statistics has delivered a significant blow to financially strained homeowners, indicating a potential resurgence in interest rates. The latest quarterly inflation figures, considered crucial for monetary policy direction, have exceeded economist projections and market expectations.
The core inflation metric closely monitored by the Reserve Bank of Australia – the trimmed mean inflation rate – reached 0.9% for the December quarter, bringing the annual rate to 3.3%. This represents an increase from the previous reading of 3.2%, moving further away from the RBA’s target band of 2-3%. Meanwhile, the headline inflation rate, which includes more volatile items, climbed to 3.8% annually from 3.4% in November.
Market reactions were immediate and decisive, with traders increasing the probability of a February rate hike from 60% to 70% following the data release. Housing costs emerged as the primary driver of inflation, surging by 5.5% annually, while food and non-alcoholic beverages increased by 3.4%.
Financial institutions have responded to the stronger-than-expected data with revised forecasts. ANZ joined Commonwealth Bank and National Australia Bank in predicting a rate increase when the RBA meets next Tuesday. ANZ’s head of Australian economics, Adam Boyton, characterized the anticipated hike as a single ‘insurance’ tightening rather than the beginning of a series of increases.
Investment experts expressed concern over the persistent inflationary pressures. Russell Chesler of VanEck described the figures as ‘uncomfortably high,’ noting that inflation is not moving decisively toward the RBA’s target range. With unemployment remaining low at 4.1% and property prices continuing to rise, market participants are now questioning not if rates will increase, but when and by how much.
The RBA governing board will convene on February 5-6, with Governor Michele Bullock scheduled to announce the official cash rate decision at 2:30 PM on Tuesday. Economists had previously indicated that a trimmed mean inflation reading of 0.8% or lower would have likely spared mortgage holders from additional financial pressure.