While today’s interest rate decision came largely as expected, and will be welcomed by borrowers, recent data suggests there are increasing forces pointing to another increase before any cuts to rates.   

The latest inflation figures came in at 5.2% rather than the projected 4.9%, largely impacted by oil and petrol price increases. It’s highly likely inflation will stay stronger for longer. The Australian dollar continues to be punished as our interest rates are materially lower than our trading block partners. If our rates remain out of sync with the rest of the world, our dollar will continue to depreciate and imports will become more expensive, creating greater imported inflation. 

It's also interesting that the RBA forecast December inflation rate of 4.1%, was calculated using an oil price of $US80 per barrel and it is now 17% higher. Residential rents are continuing to increase, and are not yet fully included in the CPI – as they lag. There are further inflationary pressures coming down the line and we therefore expect more media around the possibility of an upcoming 25bps rise. 

Strong employment figures are a positive for the Australian economy indicating a ‘less hard’ or even soft landing. The chance of a recession remains however the ‘R’ word is not necessarily as bad as it sounds. It is simply a technical term for two consecutive quarters of negative growth. That may be needed for a reset. 

In Eastern States, we’re seeing a large uplift in listing supply and the beginnings of a reduction in the number of bidders at auctions. Demand still outstrips supply – in most markets – just. This shift will continue as supply overtakes demand and prices stabilise with some small falls in some markets. This is positive as it leads to less price volatility and a safter transactional environment. In WA, listing supply is well below the average, with days on market extremely low and prices remaining robust. While we are still seeing national property price growth, it should be noted that the rate of price growth has reduced from 3% in the June quarter to 2.2% in the September quarter – that’s a 36% fall in the rate of growth. 

We're only one-third of the way through borrowers coming off fixed rates and onto variable rates. This coupled with the cost of living increases means we are likely to see more properties coming to market. The RBA minutes have detailed stories of middle-class Australians unable to meet costs of living reinforce the financial stress being felt by consumers and we expect to see more distressed sales in the coming months. 

The RBA is facing increasing inflationary forces possibly requiring more pain to mortgage holders in order to protect the mid term future. More tough economic times, however a healthy mid to long term economy and housing market with more demand than supply which is highly attractive to Australians and foreigners alike.