How inflation’s fresh rise could hit your mortgage and your life

New monthly CPI numbers show Australian prices are rising for the first time since April, and a bigger threat is emerging.

Hold onto your wallets! Things could get scary again soon for price rises and interest rates.

The Australian Bureau of Statistics has just released the latest inflation data for August, and the numbers are heading higher again – not a good sign for people wishing for an end to interest rate rises and painfully high household costs.

Wednesday’s monthly Consumer Price Index Indicator figures show a 5.2 per cent increase for the year to August, compared with 4.9 per cent for the year to July.

While the rise was in line with economists’ expectations, a bigger threat has emerged for households and mortgages: soaring fuel costs.

Crude oil prices have jumped 35 per cent since the middle of June, and there are fears oil will keep climbing and impact everything.

The Reserve Bank is still expected to keep its official interest on hold next Tuesday at new governor Michele Bullock’s first board meeting, but the chances of a Melbourne Cup day RBA rate rise increase if oil goes higher.

And people who were hoping for RBA rate cuts from early 2024 are likely to be disappointed. More economists and other forecasters are pushing back their predictions of rate cuts until late next year, or even 2025.

The financial squeeze for households may tighten further soon. Picture: iStock

Since the pandemic oil prices have been recovering, they got boosted further by Russia’s invasion of Ukraine last year, and now face production cuts by Saudi Arabia and other OPEC oil-producing countries, plus cuts by Russia.

The big hope for the rest of the world is that while the Saudis and other OPEC countries like the large profits that high oil prices generate, they do not want to tip the world into a recession that would see global demand drop.

In Wednesday’s CPI numbers, fuel had the biggest annual increase of any category, up 13.9 per cent for the year to August, with gas second at 12.9 per cent, and electricity third at 12.7 per cent.

It’s been a sharp turnaround. The previous monthly inflation figures recorded a 7.6 per cent fall in automotive fuel prices for the year to July 31.

So far in September, crude oil prices have climbed almost 9 per cent more, suggesting more CPI increases ahead – at least in the short term.

Oil impacts inflation elsewhere – a key reason for huge grocery price increases in past year was surging transport costs because of – you guessed it – higher oil prices.

However, the ABS noted that after stripping out volatile price items including fruit, fuel and holidays, the August CPI figure was 5.5 per cent – below July’s 5.8 per cent.

The big question is how long will energy and transport costs stay high, and who blinks first: central banks, oil producers or governments?

A global theme of “higher for longer” inflation has emerged in recent weeks, and it has pushed down share markets sharply this month.

For the average consumer or home loan customer, it means more belt tightening to keep household budgets in the black.

We’re getting reminders to watch our costs every time we fill up on fuel, and now may be a good time to take a look at other spending too. On home loans, groceries, insurance and other bills. Just in case the inflation pain persists for longer than anyone wanted.

Originally published as How inflation’s fresh rise could hit your mortgage and your life