Australians to expect another rate rise in Nov 2023

Australia is grappling with a surge in inflation, sparking concerns among policymakers at the Reserve Bank of Australia (RBA). The central bank has indicated that its willingness to raise interest rates hinges on upcoming labor market and inflation data. The RBA has expressed a low tolerance for prolonged inflationary pressures, signifying a potential rate hike in the near future. Australians to expect another rate rise in Nov 2023.

RBA Meeting Oct 2023

In the minutes from the RBA’s October meeting, the board contemplated raising the official cash rate. However, it ultimately decided to keep the rate at 4.1% for the fourth consecutive month, citing a lack of significant new information from economic data or financial markets.

The RBA’s cautious approach could change at its next meeting, it is scheduled for 7th November 2023. Its the day when most Victorians will be in a holiday spirit “Melbourne Cup Day”. At that time, the central bank will have fresh data on the labor market and inflation, as well as revised quarterly forecasts. If inflation remains persistent and exceeds expectations, the RBA may consider further tightening of its monetary policy.

Rising inflation figures have caused concern, with CPI spiking to 5.2% in August. This unexpected increase in prices has been driven, in part, by soaring fuel prices. Oil prices have risen by 30% since the end of June 2023. The RBA also expressed concerns that high retail petrol prices could continue to fuel inflation and impact households’ inflation expectations.

ANZ Consumer Sentiment Survey

A recent consumer sentiment survey by ANZ Bank showed that inflation expectations increased to 5.3%, a 0.2 percentage point rise in the month of October so far. It is indicating towards growing concerns about rising prices of food, commodities, essentials and utilities.

Impact of Global Events

Although petrol prices have slightly eased from their September highs, the situation may reverse due to higher oil prices resulting from geopolitical tensions, such as war in Gaza.

Impact on Real Estate

The impact of these potential rate hikes and rising inflation extends to the lives of Australians, especially borrowers and households. The RBA has already implemented multiple rate increases since May 2022, which has implications for borrowers who may experience higher interest costs. Households, on the other hand, face increasing pressures as a significant portion of their disposable income goes toward debt repayment, reaching a record high of approximately 10%. Property investors in the state of Victoria are the biggest losers due to changing laws in state. It has forced some investors to pay the renters to leave the rented homes, in order to put the home on the market.

Furthermore, the housing market has shown unexpected resilience. Home values in major cities have rebounded significantly, defying earlier forecasts. Prices, which had previously fallen by about 7% from their peaks with potential for an additional 5% to 8% drop, have instead risen by 4% to 5%. The sales results for the week ending 15 Oct 2023 were outstanding, with 2286 properties going for auction across the nation. This unforeseen surge in housing prices has raised questions about the effectiveness of the current monetary policy stance, with suggestions that it may not be as restrictive as assumed.

Job Market

The labor market has reached a turning point, with more job seekers entering the market while demand for workers has moderated. Job vacancies, while lower than their peak last year, remain at elevated levels. There are limited signs of a price-wages spiral materializing, but household disposable income, adjusted for inflation, is 3% lower than a year ago.

The global economic outlook remains uncertain, with a key risk being a potential slowdown in the Chinese economy. While this risk persists, some indicators have been more positive in recent months, providing support to prices for crucial Australian exports like iron ore and coking coal.