Inflation - RBA response?

Future markets expecting rates to hit 3.625 in 16 months from now.
In other words, punters will be paying around 50% more on their mortgages.

Who knows what the future holds but numbers wise, this doesn't add up as this will crash the economy or at least cause a recession. Don't see the RBA going that far.

 

The market rarely gets it wrong. Maybe funding costs increase external to the RBA

 

Depend on where Fed increase to.

Also how bad things get with China...

Mid 3% is not out of question since it wasn't that long ago, 0.10% was unimaginable too

 

No disagreement there especially after seeing house prices rise over 23% during a pandemic ...

 

I wouldn’t quite have that much confidence in markets, as someone who works in them.

I agree that rates above 3% would cause a hell of a lot of stress on the economy, such that even if they did get there (and I am skeptical), they probably wouldn’t stay there for long.

 

UK Inflation came in at 9% yesterday, a 40 year high. This is on the back of surging energy costs.

In Australia, Electricity & Gas pricing is normally approved by the Australian Energy Regulator on the 1st May, but due to the election this year it has been delayed until next Wednesday, at the request of the government.

Wholesale prices have been surging this year, so pretty hefty price increases need to be expected.

I saw this in a thread yesterday:

Anyone else got notice of their hikes let. South Australia has lead the transition to renewables, so their hike is apparently the lowest. Interested to see figures from Queensland where the Nationals have keep them on expensive Coal. Apparently their wholesale costs are up 300%.

Also be interesting to see Gas Bills. Wholesale gas today in Adelaide is $37.99/GJ, Melbourne $35.00/GJ, Sydney $40.00/GJ, Brisbane $39.78/GJ and we are not even into Winter. Only a couple years ago Gas use to be about $3/GJ, peaking at maybe $10 max.

 

Looks like its not just power and gas prices the government is keeping under wraps until the election:


Looks like 20% price hikes to be released as soon as Monday.

 

RBNZ just hiked 50 basis points to 2.0%.

In now sees cash rate peaking at 3.95%

 

Big gap between Australia and NZ cash rate. We are far behind.

 

RBNZ going real hard. Their starting point was pretty much same as RBA.

Does anyone have ground knowledge of how Auckland property is going? So far I don't think its pulled back 5% from top, still above significantly above pre-pandemic levels.

 

Meanwhile at Martin place,
Phil Lowe and his entourage are having a strategy meet, as we speak

 

Just curious,
what was NZ avg variable mortgage rate in late 2021 and what is it now after todays hike?

 

They might end up being the smartest of the lot. Serious talk about the US jobs market stalling down and the FED might start pivoting back to rate cuts a lot sooner than many are anticipating.
If that ends up happening, the RBA might not need to raise rates by too much.

 

What do you think RBA gained for OZ by its monetary stimulus during covid period
via reckless BC boosts which resulted in 40+% HP boost across Australia?

I am not talking about jobseekers etc
I am purely talking about encouraging and funding JoeTheFOMOs obsession
They could have easily cut IRs and roping in APRA to increase assessment buffer thus avoiding HP speculation, and since household debts would not have jacked up so much,
we would not be held hostage to IR hikes now when its most needed.

Gradual increase in wealth is far better then sudden spike,
Sudden spikes, more likely then not, results in all kinds of reckless spending/speculations,
I think current skilled labor shortage is partly because of some skilled labor taking long work break/retiring due to recent wealth effect.

 

Coming back to RBA being very smart cookie, I don't disagree,
and never.. challenge central banks as they have printing press in their basements.


"RBA might not need to raise rates by too much."
you think RBA may not even go to cash rate of 1.5%?

RBA recently has mentioned they would like to go to their normal band of 2.5% as then they would have regained some meaningful firepower in case they have to start cutting again.

The very fact that we are discussing inability of RBA to cut IR by mere 2/3% is quite telling don't you think? we are so indebted as household that RBA cannot make the move.
and a big part of we are, were we are, is thanks to RBA reckless BC boost in last 2/3 years.

 

yeah...they dont have to go above 3.5%, but they have to go upto 2.5% for long term sustainability and inflation control. that itself is enough to create panic.

 

are you sure? plenty of examples in twitter says otherwise(with data).

 

I don't know, was asking if anyone had ground level knowledge. Last time i checked it was still above pre-pandemic levels.

While Sydney / Melbourne may not be exactly the same, but there is correlation and NZ is definitely 6-12 months ahead of us in the cycle.

 

You can't blame the RBA for JoeTheFOMOs stupidity. People should be responsible for their own financial decisions. No one forced them to buy but these same people are one of the reasons why the RBA will not be able to hike as hard as everyone is expecting.

The point of my post is that i don't believe they need or can raise rates as much as the market is expecting because that would damage the economy due to most peoples mortgage payments rising by big numbers.

How much can they raise rates is crystal ball matters but if the US Fed pivots, then that would help alleviate pressure on the RBA to raise rates.

 

On one hand I have the bulls in this forum telling me that we can absorb increases because we have record household savings and equity.

On the other hand I have people like yourself telling me we can’t get very high at all.


It’s going to be a very interesting 12 months. There will be a few swimming without shorts on that’s all I can say