Borrowers could be stung with more interest rate pain as the Reserve Bank of Australia digests inflation figures.
At her first parliamentary hearing as governor, Michele Bullock offered her initial impression of the latest consumer price index that showed a re-acceleration in quarterly inflation.
Ms Bullock said it came in a “little higher” than the bank’s August forecasts, but more or less in line with their evolving expectations that took into account the since-sharp rise in petrol prices.
Goods prices have been softening but services were proving harder to budge and remained “still higher than we’re comfortable with”.
“So, in a sense, (September quarter inflation data) reinforced all of that for us,” she said.
Speaking ahead of the inflation print, the top RBA official made it clear the board would not hesitate to act on interest rates if there was a “material upward revision” to the outlook for inflation.
For now, the central bank is still assessing the impact of the inflation data on its forecasts for the economy, Ms Bullock stressed, with the board to reflect on a fresh set of predictions at the November 7 meeting.
She also said the central bank had made it “very clear that we might need to go again” despite keeping interest rates on hold since June.
“We are wary and we don’t know if the job is done yet.”
Treasurer Jim Chalmers has already said the inflation data would not materially impact Treasury’s economic forecasts.
The higher-than-expected inflation print has been enough to swing the economic teams at the three remaining big four banks in favour of an interest rate hike for November, with NAB having already predicted a 25 basis point increase.
Westpac chief economist Luci Ellis, a former RBA assistant governor, said it would be a close call but keeping interest rates on hold would be a hard case to make given “sobering” underlying details in the inflation print.
“I’ve seen enough to make my first-ever rate call to be a prediction of a hike,” she said.
If a 13th hike eventuates, the average borrower will be slugged with another $76 increase in their monthly repayments, according to RateCity analysis.
In total, households with a $500,000 debt at the start of the hikes would have to find an extra $1210 a month if the cash rate inches 25 basis points higher.
Australia is still on track to bring inflation down without tanking the economy but the RBA governor said the narrow path had not widened.
She said the US had proved particularly resilient to high inflation and tight monetary policy but had “basically run down all their savings.”
By contrast, Australians had been among the biggest pandemic savers and were still managing to squirrel some money away.
The RBA governor also flagged China’s residential property market as a “big area of risk”, with many private companies insolvent.
However China would “probably” meet its growth target of five per cent and demand for iron ore, a key Australian export, was holding up well.
“So it doesn’t seem to be dramatically impacting us at the moment,” she said.