Mortgage woes to hit homeowners again as inflation spike continues

Homeowners hopeful their cost of living woes have ended can think again, with the Reserve Bank tipped to up interest rates in February after inflation hit a 32-year high last year.

Homeowners are warned to brace for more mortgage pain with further interest rate hikes imminent as “unacceptably high” inflation fuels a cost of living crisis.

Soaring electricity, travel, accommodation, food and housing costs drove inflation to 7.8 per cent in the last year — the highest since 1990 — with prices expected to remain higher for longer.

Despite believing inflation has now peaked, economists have widely tipped the Reserve Bank of Australia to increase interest rates by 25 points to 3.35 per cent in February.

A 0.25 per cent rate hike in February would increase monthly repayments on a $500,000 mortgage by $76, which would bring the total interest rise to $908 a month since May.Monthly interest on a $750,000 loan would jump up $114, and for a $1 million mortgage an additional $152.

Last year the price of bread in Sydney increased by 12.4 per cent, meat and seafood jumped 8.5 per cent, cheese went up 14.8 per cent and milk a whopping 18.3 per cent, according to the Australian Bureau of Statistics.

Homeowners may soon face another rate hike as inflation continues. Picture: Aaron Francis

Households suffered significant energy increases with electricity prices rising 26.3 per cent and gas jumping 16 per cent, while motorists were also stung with an 11 per cent jump in the cost of petrol.

Treasurer Jim Chalmers acknowledged there were “extreme price pressures” on Australians.

Treasurer Jim Chalmers. Picture: Gary Ramage

“Our expectation and our hope is that inflation has peaked, but it will still be higher than we’d like for longer than we’d like even on the other side of the peak of inflation,” he said.

Mr Chalmers said the government’s energy relief package was beginning to take “some of the edge” off prices, but acknowledged it would “take some time for the full effects to flow through”.

Business commentator Terry McCrann said the RBA “should” raise rates by 50 points next month, but expected they would go with 25 points.

“The bottom line is inflation is still far too high, and the Reserve Bank interest rate is far too low relative to that, compared to what other countries have been doing,” he said.

RBA Governor Dr Philip Lowe Picture: Gary Ramage

“We are right on the precipice. We either get on top of it, or it gets locked in with a wage price spiral, which is the last thing anyone would want.”

AMP chief economist Shane Oliver said the inflation figures were likely enough to push the RBA toward another 0.25 per cent rate rise, and expected the consecutive hikes would soon impact spending behaviour.

“It’s hard to believe someone with a $500,000 mortgage who now has to pay an extra $11,000 a year will be unaffected by that,” he said.

Mr Oliver said recent business surveys had shown an easing in inflationary pressures and he still expected it to drop to around 4 per cent by the end of this year.

Commonwealth Bank head of economics Gareth Aird said he expected the RBA to raise rates by 0.25 per cent in February, with potential for a second increase the following month. “Notwithstanding, the risk sits with a further rate hike at the March board meeting,” he said.

Coalition treasury spokesman Angus Taylor accused the government of being “asleep at the wheel” on inflation, with no solutions on the table.

“The Treasurer has his fingers and toes crossed, hoping inflation has now peaked but that’s cold comfort for the millions of Australians struggling to keep up with rising power bills, soaring grocery prices and surging mortgage repayments,” he said.