It’s August and as winter draws to a close there’s snow in the Alps and the wattle is blooming. Many Australians will soon receive a sizeable tax refund, if they haven’t already, which should help ease those rising cost-of-living blues.
Rising inflation and interest rates were the focus of attention in July. The US Federal Reserve lifted its target rate by 75 basis points to 2.25-2.50% to tackle surging inflation of 9.1%. At the same time, the US economy contracted by 0.9% in the June quarter, following a 1.6% drop in the March quarter.
By contrast, Australia is performing relatively well. In his first economic statement, treasurer Jim Chalmers downgraded growth forecasts to a still solid 3.75% last financial year and 3% this financial year. Inflation jumped to 6.1% in the year to June and is forecast to peak above 7% in December. And the Reserve Bank lifted the cash rate by 50 basis points to 1.35% in July, with a similar increase tipped this month and more to come. Governor Philip Lowe said he expects rates to get to ‘at least’ 2.5%. Unemployment fell to 3.5% in June, but rising prices and interest rates dented confidence.
The biggest hit to inflation has come from housing and construction prices and petrol. But the housing market is cooling due to rising interest rates, with national home values easing 0.6% in June and new dwelling starts down 6.5% in the March quarter. Petrol prices are also easing, down 19c to below $1.93 a litre in late July on falling global oil prices. The Aussie dollar gained a cent to finish the month around US70c.
For many people, the rising interest rate environment will mean concerns over mortgage affordabilty. If you feel you could be getting a better deal from your bank don’t be afraid to ask for a rate reduction – the worst they can do is say no. Or if you would like to see if we can get a better deal for you from another lender, please give us a call. In a rising interest rate environment the longer you leave it to look at your options, the harder it will be to meet a lender’s servicing capacity guidelines.
