Is this the rate rise that stops a nation?

The first Tuesday in November is normally remembered for the Melbourne Cup, the race that stops the nation. However, many are saying that the first Tuesday in November in 2023 may be remembered for the rate rise that stops a nation.

RBA has raised the cash rate by 0.25% to 4.35%, as inflation is still too high.

“Inflation in Australia has passed its peak but is still too high and is providing more persistent than expected a few months ago. The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly.

The RBA Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.

Many financial experts are pointing to the fiscal policy of the Federal Government, which with enormous immigration numbers coupled with infrastructure spending are putting further pressures on inflation.

Effectively making the RBA do all the heavy lifting to get inflation under control.

However, if you ask the politicians themselves how their fiscal policy is impacting inflation, Treasurer Jim Chalmers says “Labor’s policies are helping, rather than hurting the RBA’s work to try and calm inflation in the Australian economy” which will provide little comfort to many mortgage holders around Australia.

One economic reporter provided this:

“Well Albo now has an even bigger problem.

Replacing Lowe gave him a bit of a clean slate with the electorate on rate rises, that’s now gone.

Meanwhile, inflation remains entrenched and in time attention is going to turn to how his policies are helping drive it.”

Central Banks and Interest Rates:

The RBA increased rates by 0.25%, to a cash rate at 4.35%.

While some experts wanted the RBA to sit and wait for clearer signals, others suggest that the RBA might have another one quarter-point rate hikes up its sleeve, after today’s rise.

Raising the cash rate can be used a tool to combat inflation and stabilise the currency. As this affects households with mortgages and typically dampens spending and inflation.

Inflation – A Roller Coaster Ride:

Inflation figures, both in the US and Australia, came as a surprise to many. With global energy prices potentially being influenced by geopolitical tensions, it seems inflation's unpredictability is set to continue. But as history shows us, inflation is cyclical, and periods of highs are often followed by lows.

Recent data reveals:

From the high of 7.8% in December 2022, inflation had momentarily subsided, but as the ABS reports, it rose once more in September, despite RBA's numerous rate hikes.
Goods prices surged 1.2% over the September quarter and 4.9% annually, with notable spikes in food, furniture, and housing.
Services, often more inelastic, saw a 1% quarterly rise and an annual increment of 5.8%.

On the investment front, certain asset classes like equities, real estate and infrastructure might seem attractive as they historically offer a hedge against inflation.

Our Take & Assurance:

We understand the concerns that may arise when the financial landscape seems to shift unpredictably. Yet, it's in times like these that our commitment to diversification, portfolio management, and long-term vision stands out.

Ensure your financial plan is up to date and ready to take advantage when opportunities arise. For those long-term investors, come back to your long-term goals. Don’t be making long term financial decisions, based on short term metrics.

It will not feel like it at the time, however this uncertainty will pass.

What should I do if I’m concerned about my investments or mortgage?

If you’re wondering about whether you should make changes to your investments or review your mortgage, we recommend connecting with Matthew McCabe your Newcastle financial adviser to review your investment goals, identify any potential opportunities, and make changes if necessary.