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Treasurer Jim Chalmers expecting inflation to get worse before it gets better in 2022

Treasurer Jim Chalmers expects inflation to reach its highest level in 32 years by the end of 2022, leading to several more interest rates before Christmas.

Headline inflation was already 5.1 percent in the year to March – the highest level since 2001, and it could be years before it falls back below 3 percent.

dr. Chalmers admitted that inflation is unlikely to be kept below seven percent, stating: the average price of unleaded gasoline is now back above $2 a liter, despite a temporary six-month fuel tax cut to 22.1 cents a liter.

‘We’ll see that later. Certainly, the expectation across the board is that inflation will get significantly higher than the 5.1 percent we saw in the March quarter,” he said.

“Across the board, inflation is expected to worsen before it gets better, and then interest rates will rise again.”

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Treasurer Jim Chalmers expects inflation to reach its highest level in 32 years by the end of the year - leading to several more interest rates before Christmas (he is pictured with his wife Laura)

Treasurer Jim Chalmers expects inflation to reach its highest level in 32 years by the end of the year – leading to several more interest rates before Christmas (he is pictured with his wife Laura)

Reserve Bank of Australia governor Philip Lowe predicted last week that inflation would hit seven percent by 2022, the highest level since 1990.

dr. Lowe warned borrowers on Tuesday to brace themselves for more rate hikes.

“If interest rates start to rise, those buffers will be eaten up and the fact that households have more debt than they used to be will bite,” he told the US Chamber of Commerce in Australia on Tuesday.

‘We are very aware of that.

“As an individual, I worry about the people who have borrowed too much and could get into trouble as a result.

‘Provide buffers, be prepared, the future is uncertain.

“Some people will have problems, and as an individual I regret that.”

dr. Lowe also predicted it would take “a few years” to bring inflation back within the RBA’s two to three percent target.

dr. Chalmers praised Mr Lowe for being candid about the likelihood of more rate hikes after the RBA repeatedly said last year that the cash interest rate would remain at a record low of 0.1 percent until 2024 at the earliest.

dr.  Chalmers admitted it's unlikely inflation can be kept below seven percent, with the average price of unleaded gasoline now back above $2 a liter - despite a six-month temporary fuel tax cut to 22.1. cents per liter (shown is a service at Sydney station)

dr. Chalmers admitted it’s unlikely inflation can be kept below seven percent, with the average price of unleaded gasoline now back above $2 a liter – despite a six-month temporary fuel tax cut to 22.1. cents per liter (shown is a service at Sydney station)

Commonwealth Bank’s New Interest Rate Forecasts on RBA Cash Rates

JULY: 0.5 percentage point up to 1.35 percent

AUGUST: 0.25 percentage point up to 1.6 percent

SEPTEMBER: 0.25 percentage point up to 1.85 percent

NOVEMBER: 0.25 percentage point up to 2.1 percent

“Obviously, as interest rates continue to climb, as directed by the Reserve Bank governor, it will become more difficult for Australians to pay off their mortgages,” said Dr. Chalmers.

“So this is a very difficult time, and I welcome the candor and candor with which Governor Lowe has described the challenges ahead.

“This is already making life very difficult for Australians, and for Australian industry too, as prices for goods and services and supplies are skyrocketing.”

The Reserve Bank raised its spot interest rate by 0.25 percentage point in May, the first increase since November 2010.

This ended the era of the record-low cash interest rate of 0.1 percent, bringing it to 0.35 percent.

Another rate hike followed in June, with the 0.5 percentage point increase being the strongest since February 2000.

The existing cash rate of 0.85 percent is now the highest since October 2019 before the pandemic.

The RBA minutes from that June meeting, released Tuesday, revealed that board members debated whether or not to raise the cash interest rate by 0.25 percentage point or 0.5 percentage point.

Reserve Bank of Australia governor Philip Lowe predicted last week that inflation would hit seven percent by 2022, the highest level since 1990 (pictured is a Woolworths supermarket in Sydney)

Reserve Bank of Australia governor Philip Lowe predicted last week that inflation would hit seven percent by 2022, the highest level since 1990 (pictured is a Woolworths supermarket in Sydney)

A higher increase was chosen to address inflation expectations, whereby providers of goods and services continuously passed on higher prices to consumers.

The Commonwealth Bank, Australia’s largest mortgage lender, expects an interest rate hike of half a percentage point in July.

This would be followed by 0.25 percentage point increases in August, September and November, bringing the spot rate to 2.1 percent – the highest in May 2015.

Westpac expects another rate hike in February 2023, bringing the spot rate to 2.25 percent, which would be the strongest rate hike in less than a year since 1994.

The RBA minutes noted that financial markets expected a cash interest rate of 2.75 percent by December 2022.

Inflation was not expected to fall back to the top of the RBA’s target of two to three percent until 2023.

How much YOU could pay on your mortgage this Christmas?

$500,000: $485 up from $1,987 to $2,472

$600,000: $582 up from $2,384 to $2,966

$700,000: $679 up from $2,781 to $3,460

$800,000: $777 up from $3,178 to $3,955

$900,000: $874 up from $3,575 to $4,449

$1,000,000: $970 up from $3,973 to $4,943

The monthly amortization calculations are based on a typical Commonwealth Bank floating rate rising from 2.54 percent to 4.29 percent, in line with the spot interest rate rising from 0.35 percent to 2.1 percent. Banking figures before adjusting this month to new 0.85 percent spot rate

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