The Impact of US Inflation on the Australian Housing Market
The United States is currently going through a critical time in terms of its economy as the inflation rate is at a 40-year high. The United States Government’s Labour Department, there has been an increase in America’s CPI or Consumer Price Index by 7.5 percent compared to the CPI 12 months ago, before the new administration. It’s considered the biggest cash rate increase since 1982.
Price increases follow along with the improvement in the economy. Although believed to be temporary, this could affect the spending capability of a lot of Americans.
What does this high inflation mean for the housing market?
According to AMP Capital’s chief economist Shane Oliver, “the US’ increased inflation rate could mean America’s Federal Reserve has to be more assertive with interest rates rises this year.” This could mean that the global cost of borrowing will be affected as well and raising interest rates this year might be more aggressive than it was last year. Australia might see fixed term interest rates as a result of long-term bond yields due to the pressure on long-term bonds in the US because it is part of the global market. Simply put, continued high inflation numbers in the US would mean ongoing upwards pressure on fixed rates in Australia.
How do fixed rates affect Australians?
At the moment, fixed rates are pretty low, so for homeowners with mortgages, it could still be a good time to consider fixing interest rates in the immediate future. Right now, Oliver says that the standard variable mortgage rate or the discounted mortgage rates that most people are paying are around three percent. However, the rates will likely start increasing later this year. The time Reserve Bank starts to increase interest is when variable rates most likely start rising as well.
Some experts still believe that the skyrocketing inflation won’t force the Reserve Bank of Australia into an accelerated increase in interest rates later this year. Even the Reserve Bank governor assures everyone that there is no rush into making such increases. He adds that it’s not just waiting that has risks but moving too early as well. One of the biggest risks of moving too early has to do with unemployment. The country has been able to secure a lower unemployment rate over a period of time, so doing anything reckless could potentially put that at risk.
Unemployment is one of the biggest problems the world is facing due to the effects of the pandemic. Now is not a good time to put all efforts to waste. There is no doubt that the inflation rate in the US could really make a huge impact on other countries, but right now the wise thing to do is to wait and prepare for what could happen.