Soaring new inflation figures this week were higher than expected, with consumer prices rising at a rate not seen since the GST came in, meaning an interest rate rise could come as soon as May.
Consumer prices surged by the most they have in 20 years, with the inflation rate hitting 5.1 per cent over the past year. They have already jumped 2.1 per cent in the first quarter of this year.
The Reserve Bank’s preferred measure of inflation takes out the most extreme ends of price moves and came in at 3.7 per cent, which is still well above its 2-3 per cent target range.
Tellingly, it’s the highest annual level of underlying inflation since March 2009, which was right before the Reserve Bank last started a cycle of interest rate increases.
Economists now are not ruling out an interest rate hike as soon as the next RBA meeting.
"A good deal of the inflation observed in the quarter relates to supply-side disruptions that the RBA would typically 'look-through'," BIS Oxford Economics’ Sean Langcake told the ABC.
"But the increasing breadth of inflationary pressures and growing upstream disruption in China means that the May board meeting is in play for a rate hike."
The Commonwealth Bank, however, says despite the soaring inflation figures they will keep their forecast of a June rise in rates as it is, but says if it does wait until June then it will likely be a 40 basis point hike rather than 15.
"We acknowledge that there is a clear risk the RBA raises the cash rate at the May board meeting next week," CBA statements say.
“Indeed the inflation data today indicates that the RBA should raise the cash rate.
"However, we are taking the RBA's communication in the April board minutes published last week at face value. If the RBA lifts the cash rate at the May board meeting next week they will have reneged on what they said just last week."
In a sign of the ruffled feathers caused by rapidly rising inflation, the ANZ is one bank that thinks the RBA will now rush to increase the official cash rate in May off the back of the latest figures.
"We now expect the RBA to hike by 15 basis points next week," ANZ economists say.
The NAB are on board with the ANZ’s prediction, while Westpac are still reviewing their forecasts.
For home loan borrowers, those that have been recently locking in fixed rate loans have copped higher rates for a while now and those on variable rates will now start to pay higher monthly payments.
On the positive side, the pandemic has meant a lot of households have been able to reduce spending and have built up some solid savings to get ahead on their mortgage, so while the economy will be cooled by a rate hike, it shouldn’t mean we see an instant catastrophe for home owners.