ABE Weekly 20/01/23
The Reserve Bank of Australia (RBA) set the cash rate at 3.10 per cent on 7 December 2022, an increase of 0.25 bps from the last change. The increase in interest rates could have an impact on first home buyers as their buying power will most likely decrease.
Higher labour and material costs have increased housing prices, driving the increase in inflation. In fact, for November 2022 the inflation rate was 7.3 per cent.
So, what is going on below the surface? Although households are under a lot of pressure due to higher mortgage repayment costs because of higher interest rates, consumers keep spending. In fact, household spending increased 11.4 per cent through the year November 2022.
Fed Chair Jerome Powell has warned that the Fed still needs to control inflation which means that consumers should not be too optimistic about rates increases stopping just yet. In fact, although Inflation decreased to 6.5 per cent in December 2022, the Fed is likely to maintain high interest rates.
Interest rate stands at 2.50 per cent as of December 2022. Meanwhile, inflation in the eurozone decreased to 9.2 per cent in December 2021 from 10.1 per cent in November.
Ursula von der Leyen, President of the European Commission stated that we are seeing rising inflation making the cost of living and conducting business more expensive. We see energy being used as a weapon and threats of trade wars, the impacts being felt by families and businesses.
Andrew Bailey, Governor of the Bank of England, said that investors were still cautious about lending money to the UK Government, furthermore, he said that the Mini budget that included a series of tax cuts to stimulate economic growth was partially responsible for rises in mortgage rates and instability in the gilts market.
Contact us if you have any questions or would like any assistance.
Disclaimer: The information and any advice provided in this ABE Weekly 20/01/23 newsletter has been prepared without considering your objectives, financial situation or needs. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things. You should obtain the relevant appropriate document for any product mentioned and consider its contents before making any decision.
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Australian Bureau of Statistics. (2023, 01 18). Monthly Household Spending Indicator. Retrieved from Australian Bureau of Statistics: https://www.abs.gov.au/statistics/economy/finance/monthly-household-spending-indicator/latest-release
European Central Bank. (2022, December 21). Key ECB interest rates. Retrieved from https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
NBC News. (2023, January 13). Inflation cooled in December to 6.5% but the Fed is likely to keep interest rates high. USA. Retrieved from https://www.nbcnews.com/business/economy/inflation-rate-december-2022-usa-interest-rate-hikes-analysis-rcna64914
Nelson, E. (2023, January 17). Retrieved from https://www.nytimes.com/2023/01/16/business/core-inflation-europe-eurozone.html
Reserve Bank of Australia. (2022, October 26). Measures of Consumer Price Index. Retrieved from Reserve Bank of Australia: https://www.rba.gov.au/inflation/measures-cpi.html#:~:text=The%20consumer%20price%20index%20%28CPI%29%20is%20a%20quarterly,of%20the%20CPI%20basket%20each%20month.%20Related%20Information
Reserve Bank of Australia. (2023, 01 18). Cash Rate Target. Australia. Retrieved from https://www.rba.gov.au/statistics/cash-rate/
Reuters. (2023, January 18). Citi CEO says Fed could slow interest rate hikes by early summer- CNBC. Retrieved January 18, 2023, from https://www.reuters.com/markets/rates-bonds/citi-ceo-says-fed-could-slow-interest-rate-hikes-by-early-summer-cnbc-2023-01-17/
Thomas, B. K. (17, January 2023). Bank of England governor warns of Truss hangover effect. (B. News, Ed.) Retrieved from https://www.bbc.com/news/business-64296230
World Economic Forum Annual Meeting. (2023, January 17). Davos 23: Special Address by Ursula von der Leyen, President of the European Commission. Davos, Switzerland. Retrieved from https://www.weforum.org/agenda/2023/01/davos-23-special-address-by-ursula-von-der-leyen-president-of-the-european-commission/