Strong demands for homes and limited supply factors are balancing the effects of rise in interest rate

The Reserve Bank unexpectedly raised the interest rates last week by 25 basis points, the 11th increase in this tightening cycle, despite the consensus expecting no change. The unexpected decision raises the cash rate to its highest level to 3.85% since April 2012.

 This provided the RBA space to hike the cash rate further while upholding their credibility about their aim of 2-3% inflation and stabilizing inflation expectations.

 The RBA anticipates that it will take a few years before inflation returns to the upper end of the target range, and it emphasizes in its statement that the board is prepared to do more as high inflation becomes a problem.

Inflation is too much and is significantly higher than the Reserve Bank's goal range regardless of its most recent monthly inflation readings and the official CPI data showing the rate of inflation peaked in December and is now declining. Services inflation is going on, and core inflation pressures are extremely high.

The labour market remains tight at the moment. The public sector's wage stream and upcoming minimum wage decision are expected to maintain wages under pressure, boosting inflation. The chance of a wage-price spiral continues to cause concern for the central bank.

To learn more about the impact of soaring cost of living on the real estate market, book a meeting or contact our team of experts at 0481611220

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