Speaking to Melbourne radio station 3AW on Tuesday morning, Stephen Koukoulas, managing director of Market Economics, warned that Australians with mortgages are in for a rough ride for the next 12 months.

Mr Koukoulas explained how he had to revise down his optimistic outlook after the latest consumer price index showed that inflation was continuing to run rampant.

In January, the Australian Bureau of Statistics found the annual rate of inflation was at 7.8 per cent, marking the highest yearly increase since 1990, and was higher than expected.

“A couple of weeks ago I didn’t think they (the RBA) would have to do it (hike the interest rate) because I thought the economy was slowing down,” he told the radio network.

“But when that CPI number came out a week or two ago, at 7.8 per cent, so the highest in 32 years, and given what we’re seeing in the global economy last week … we’re just part of the global phenomenon where inflation even though it is starting to tilt lower, isn’t falling fast enough.”

The risk, according to the economist, is that if Australia’s central bank keeps increasing the rates, by the time inflation gets under control, the economy will be incredibly weak and Australians will still be struggling. 

“Up until 18 months ago we have had basically 25 years of very low inflation,” Mr Koukoulas explained.

But now homeowners across the country have endured eight consecutive rate hikes last year starting from May, despite originally being told the rate wouldn’t rise until 2024.

“There is a risk if they (the RBA) follow through with two more rate hikes once we get to the middle of this year, the wheels will have fallen off, the economy will be weak and we’ll be going ‘we did a bit too much too late’,” Mr Koukoulas added.

He’s not the only one warning Australians to brace for a grim year ahead.

Deutsche Bank expects the rate will peak at 4.1 per cent all the way in August.

Chief economist of Deutsche Bank, Phil O’Donaghoe said last week that Australia’s central bank will hike up prices in February, March, May and August.

“After last week’s Consumer Price Index (CPI) and … also the fact that household spending looks like it’s been pretty resilient through Christmas and the start of the year,” Mr O’Donaghoe said.

“Put those two things together and I thought 3.35 per cent isn’t going to be enough.”

Were rates to rise according to economists’ projects on Tuesday afternoon, analysis from Canstar found that for the average Australian on a $500,000 mortgage, their monthly repayments will jump by $969 per month or $11,628 per year.

For homeowners stuck with a $1 million home loan, they’ll be lumping out an extra $1,939 a month, which is $23,268 over the next 12 months.

Australia’s biggest four banks have also weighed in and most don’t expect a February rate hike to be the last.

Economists from the Commonwealth Bank, Westpac, NAB and ANZ all have independently concluded a 25 basis point increase is the most likely outcome for later on Tuesday.

The CBA did warn, however, that was a 25 per cent chance of a 40 basis point hike.

ANZ and Westpac both have forecast for the cash rate to peak in May once it reaches 3.85 per cent.

They expect two more rate rises after the February meeting to reach the terminal rate before Australians will get a reprieve.

NAB had a better prediction for struggling homeowners, forecasting that homeowners only have to endure two more months of rises.

The bank’s economists said by March, the interest rate will have peaked at 3.6 per cent.

The Commonwealth Bank had the most optimistic prediction of all, suggesting that interest rates could peak on Tuesday afternoon but then pause while the RBA reassessed and waited for more reports on inflation.

Source: Nationwide News