It’s been a grim start to March, with much of the world tuning in on the war in the Middle East. Meanwhile in Australia, there’s another war raging between fuel prices and inflation - leading the RBA to increase the cash rate by 25 basis points to 4.10%.  

After recent world events, three of the major banks (CBA, NAB, and Westpac) changed their prediction to a rate hike, while ANZ stood firm on a rate pause until May.

Why did most economists predict a rate increase?

Since mid last year, Australia’s inflation has been steadily climbing despite the RBA’s warnings and best efforts (read: rate hike in February) to keep it under control.

Quick reminder: Inflation measures the increase in the prices of goods and services using the Consumer Price Index… and this includes the price of fuel.

While the latest public inflation data hasn’t factored in the jump in oil prices yet, the RBA warned that higher spending will inevitably push inflation above forecasted levels.

And let’s just remember that the most recent inflation quarterly CPI  rose 3.8% in the December quarter,which is already well above the target range of 2-3%.

The big question is, will this spending spike stick around or is it just a short term bump in Australia’s economic road?

Hint: The RBA seems to believe these recent events are going to have a long term effect on Australia’s economy - and that’s why they’re dialling up the cash rate.

The RBA is concerned because when prices rise too quickly, households lose purchasing power (same pay check = affording less stuff), and this leads to a ✨cost of living crisis✨. And as prices get higher and higher, the inequality gap widens and lower income families get hit the hardest.  

So what happens when the cash rate goes up?

If you’ve got a variable-rate home loan, this could add a few hundred bucks a month onto your repayments… which means less to spend on other essentials.😔

Savers, good news for you! You might see interest on your accounts go up. It’s worth shopping around or parking cash in high interest saver accounts for maximum gains!