A major Australian bank has issued a fresh warning that inflation in Australia may remain higher than expected, increasing the likelihood of an RBA interest rate hike in February and placing renewed pressure on home loan repayments across the country.
Commonwealth Bank of Australia (CBA) has forecast that the key trimmed mean inflation rate — the Reserve Bank of Australia’s preferred measure of underlying inflation — will rise by 0.9% in the December quarter, according to upcoming Australian Bureau of Statistics (ABS) CPI data.
This level of inflation is widely considered the tipping point for further tightening of monetary policy, with rival bank ANZ previously stating that a 0.9% quarterly inflation result would make an RBA rate rise “more probable.”
Inflation Still Above RBA Target Range
CBA economists expect annual trimmed mean inflation to increase to 3.3%, up from 3.0% in the previous quarter, while headline CPI inflation is forecast to reach 3.8% annually, exceeding the market consensus of 3.6%.
Both measures remain above the Reserve Bank’s target range of 2% to 3%, increasing pressure on RBA Governor Michele Bullock and the Reserve Bank board to act at the upcoming February RBA meeting.
“We expect the CPI results will confirm that underlying inflation pressures remain strong, which may lead to the RBA increasing the cash rate in February,” CBA Economics said, noting the decision could be finely balanced.
Mortgage Holders Face Higher Home Loan Repayments
A potential interest rate rise in Australia would directly impact millions of households, particularly those on variable-rate home loans, who would experience immediate increases in their monthly mortgage repayments.
According to Canstar mortgage calculations:
- A $600,000 home loan could rise by approximately $90 per month
- A $750,000 mortgage could increase by about $112 per month
- A $1,000,000 mortgage could face an additional $150 per month
These increases would add further strain to household budgets already affected by high living costs and elevated borrowing expenses.
Big Four Banks Divided on February Rate Decision
Australia’s Big Four banks are currently split on the outlook for interest rates:
- CBA and NAB expect a rate hike in February
- Westpac forecasts rates will remain on hold
- ANZ has not made a firm prediction but says inflation at 0.9% would significantly increase the chance of a hike
This division reflects broader uncertainty among Australian economists about whether inflation is cooling fast enough to avoid further tightening.
ABS CPI Data Could Decide the RBA’s Next Move
Attention now turns to Wednesday at 11:30am, when the ABS will release official CPI inflation figures, which could determine whether the RBA raises interest rates again and whether Australian mortgage holders face another round of rising repayments.
If inflation remains stubbornly high, the cash rate target could increase, extending the period of financial pressure on homeowners and property investors across the Australian housing market.
