Interest rate rises will hinge on these five financial figures

How many more interest increases? The Reserve Bank board will be closely watching this important data before it decides.

That’s 10 interest rate rises done and more to come, according to the Reserve Bank of Australia and many economists, following Tuesday’s 0.25 percentage point increase.

While the RBA’s wording was less aggressive than it was in February, governor Philip Lowe said more interest rate rises were expected to be needed to lower inflation.

Since May 2022 the official cash rate has climbed from 0.1 per cent to 3.6 per cent, driving up repayments on many mortgages by 50 per cent.

Key data releases in the coming weeks and months will deliver the RBA – and struggling borrowers – more clarity about when the rate rise pain may stop, and perhaps a shift to rate cuts.

1. CPI

The Consumer Price Index measure of inflation is the daddy of all economic factors impacting rate decisions, with the cash rate the RBA’s only real tool to try to get inflation within a 2-3 per cent zone that it is seen as best for employment, our currency and the economy.

Think of rate rises as a stick that bashes spending into submission, which then stops businesses from pushing prices higher, which then lowers inflation.

High inflation prolongs financial pain and damages the economy, the RBA says, and Australia’s current CPI rate is 7.8 per cent – well above the target range.

Inflation appears to have peaked, but the next official CPI reading won’t be released until May, so the RBA will be balancing on a high wire before then.

2. GDP

Gross domestic product is the main measure of economic growth, and while it has been weakening, it hasn’t been tanking.

The latest quarterly GDP rose 0.5 per cent, below economists’ expectations. If it goes negative for two quarters, we are in an official recession.

That should at least bring rate cuts back into the national conversation because recessions mean job losses, business failures and general financial pain.

The next set of GDP data – for the March quarter – won’t be released until June.

3. UNEMPLOYMENT RATE

Australia’s 3.5 per cent unemployment rate is near a 50-year low, but as economic growth slows it is expected to rise.

That will be a signal that rate rises should end soon, and potentially prompt the RBA to switch its focus to rate cuts.

The next lot of Labour Force data is released on March 16.

4. WAGES GROWTH

Average full-time weekly earnings by Australians rose 3.4 per cent to $1807.70 ($94,000 a year) for the 12 months to November 30, less than half the official inflation rate.

This is good news for borrowers, because it suggests that economists’ and RBA fears of a wage-price spiral – where inflation surges, wages surge, inflation surges again and so on – is not materialising.

RBA governor Philip Lowe suggests at least one more rise. Picture: NCA NewsWire/Gary Ramage

This short-term pain, with wages growth well below CPI, should be better for the economy longer term because it means rates will fall sooner.

Wages growth is also measured by the Wage Price Index, up 3.3 per cent for 2022. This data will next be released in May.

5. CONSUMER CONFIDENCE

There are several consumer and business confidence indices that measure Australians’ outlook, and these can be more telling than the Australian Bureau of Statistics data that typically runs a couple of months behind.

The latest Westpac-Melbourne Institute Consumer Sentiment Index, released on Valentine’s Day, found sentiment near historic lows with “weaker reads only ever seen during recession”.

It’s another sign that rate rises are getting closer to peaking, and the cash rate may begin dropping later this year.