Inflation crisis ‘crept up’ on Australia, business expert says, as RBA raises interest rates again

The inflation crisis that has sparked yet another interest rate rise didn’t come out of nowhere - but it did “creep up” on us.

Surging inflation “crept up” on Australia, and is to blame for the fourth interest rate rise in as many months as the Reserve Bank takes an assertive approach in an attempt to curb the rising cost of living.

Peter Ryan, a business correspondent ABC News, today told the ABC that the RBA had no choice but to be “aggressive” as it plays catch-up with rising prices across the country.

“Inflation, you could say, crept up behind them while they were waiting to see evidence of wage growth,” Mr Ryan said on Tuesday afternoon.

“So now, there’s no choice but to move very, very aggressively and it’s highly likely that in

September there might be another 0.5 per cent increase, depending on how the future markets regard this.”

As a result, Mr Ryan is predicting a “higher-rates environment” to continue up until the end of the year, possibly even merging into the beginning of 2023.

Following the RBA’s meeting today, the cash rate now stands at 1.85 per cent, a 50 basis point increase in line with previous trends.

It comes after the country recorded another increase in annual inflation last week, reaching its highest level in 21 years at 6.1 per cent.

However the RBA has made it clear it wants to see that figure halved and sitting in the 2 to 3 per cent target range.

“At this time, (the RBA) will be doing what it takes to bring inflation down, so they’re committed to that, and so you can lock in more rate rises later on this year – perhaps September, October and November, as some market economists are predicting,” Mr Ryan said.

Interest rates have increased for a fourth time in as many months as the RBA works to combat the rising cost of living. Picture: iStock

Households paying off an average $500,000 home loan will now have to fork out an extra $140 due to the rate rise.

Mr Ryan said borrowers who took out a mortgage at the end of last year will feel the pinch the most.

“There will be households and families that will fall into mortgage debt and this comes to the signal that Reserve Bank Governor Philip Lowe gave late last year, when he said that, most likely, the cash rate would stay low, near zero, at 0.1 per cent, until 2024,” he said.

“(But there are now) concerns that there are some borrowers who took that very seriously and leveraged up big time, and are now facing problems.”

While Mr Ryan believes inflation snuck up on Australians, Treasurer Jim Chalmers said following today’s RBA meeting that mortgage-holders should have seen the rate rise coming.

“Average homeowners with a $330,000 outstanding balance will have to find about $90 a month more for repayments as a consequence of this decision today, on top of around $220 extra in repayments since early May,” Dr Chalmers said.

“For Australians with a $500,000 mortgage, it‘s about an extra $140 a month, in addition to the extra $335 they’ve had to find since early May.”

“As I said, Mr Speaker, this decision doesn’t come as a surprise. It’s not a shock to anybody, but it will still sting.”

Treasurer Jim Chalmers during Question Time in the House of Representatives in Parliament House in Canberra following today’s rate rise. Picture: NCA NewsWire / Gary Ramage

With banks expected to pass on the RBAs interest rate rise as seen in the past, the Finance Brokers Association of Australia is urging borrowers to take care if considering switching lenders.

“We know from the research the FBAA conducted last year that many mortgage holders were not prepared for this and will now be under financial stress,” Peter White AM, managing director of the FBAA said.

“This will cause them to look at refinancing options, which is a reasonable solution for some.”

Mr White is urging borrowers to not become fixated on the interest rate, rather to consider all of their options before moving ahead.

“It can be very costly to switch lenders so you should have all of the facts first. Borrowers at this time must prepare for higher payments, and budget accordingly,” he said.

“If the increase is creating financial hardship their first call should be to their lender who has the power to help them.”