Australian homeowners could soon face more mortgage troubles after the week's most important inflation figure is released, with Treasurer Jim Chalmers warning on Wednesday that the figures are likely to show “persistent” price pressures in the economy.
In an interview with Sky's Weekend Business on Sunday, Mr Chalmers said inflation was “significantly” lower than its 2022 peak but the June quarter consumer price index showed inflation was continuing to be high across the economy.
“Inflation doesn't flatten out in a straight line,” he said.
“Let's move in a zigzag pattern little by little.”
The finance minister added that he was “confident” that prices would continue to “mitigate” and fall over time following Wednesday's reading.
Following the higher-than-expected CPI reading on June 26, concerns grew about another rate hike and its negative impact on economic activity.
The ABS reported that the monthly CPI for the year to May rose 4% from 3.6% in April.
Economists had expected a lower increase of 3.8%.
Some economists have predicted that the Reserve Bank of Australia will raise interest rates again if the CPI on Wednesday shows sustained inflation.
The RBA's cash rate acts as a benchmark for interest rates across the economy, and banks are generally quick to pass on rate increases to mortgage holders. This reduces the purchasing power of millions of Australians, forcing more of their income to be used to service larger debt loads.
Deloitte warned last week that another rate hike could be “a straw on the camel's back” given the economy's existing weaknesses.
“Consumer and business confidence remain at rock bottom, household budgets have been hit hard by cost of living pressures, and bad debts have soared,” the consultant’s latest business outlook reads.
“In that environment, Australians and Australian businesses were looking forward to July 1 as the start of tax relief and other relief measures.
“It would be a huge blow for the RBA board to take away that relief as soon as it arrives.”
The Commonwealth Bank said in its “Week Ahead” report that if quarterly inflation rises above 1.1%, the “balance of probabilities” would shift toward another rate hike.
“In our view, the likelihood of an August hike depends on the RBA's preferred baseline inflation measure, the trimmed average,” the bank said.
“We forecast next week that average inflation will rise by 0.9% quarterly and 3.9% annually.
“We see this as giving the RBA ample room to keep rates on hold, albeit slightly above its implicit forecast of 0.8%/quarter.
“We see that the 1%/quarter print is in a 'gray area' where it can be maintained or increased depending on component details.
“A print of more than 1.1% per quarter would test the board's resolve and tip the balance of the odds in favor of a rate hike.”
Chancellor Chalmers highlighted the government's moves to curb inflation, citing two budget surpluses and spending discipline.
He also said he expected “key factors” in Wednesday's reading to include insurance, rent and gasoline prices.
“None of these factors have anything to do with government spending,” he said.
As Australia looks set to raise interest rates, other global economies are moving toward lower rates as inflation eases amid the impact of COVID-19 and the war in Ukraine.
The Bank of Canada cut rates this week, and the U.S. Federal Reserve is expected to cut rates in September.
The RBA board will next meet on August 5-6 to decide whether to change the cash rate.
Wednesday's inflation results could also influence the outcome of the upcoming federal election.
A new RedBridge poll shows the Coalition ahead of the government in both party polls.
Peter Dutton's LNP currently leads Labor 51.5% to 48.5%.
In April, the same polling firm found the government leading 52% to 48%.
The company said the shift was a response to a shift of low- and middle-income voters to coalition camps in response to the nation's cost-of-living crisis.
