Reserve Bank of Australia Says Less Living Cost Pressures but More Mortgage Pain in 2023

A pedestrian moves past the Reserve Bank of Australia (RBA) building in Sydney, Australia, on Oct. 18, 2022. Lisa Maree Williams/Getty Images

Australian consumers may soon see a drop in the prices of daily necessities as the Reserve Bank of Australia (RBA) says inflation is likely to ease throughout 2023. However, the shadow of mortgage hikes still hovers around for borrowers.

During a parliamentary hearing on living cost pressures, RBA head of economic analysis Marion Kohler acknowledged the severe impact of the rising living costs on Australian households.

“Prices have risen significantly for many of the goods and services that people buy,” she said.

“Today, the higher cost of living is front of mind for many more people than was the case in the years leading up to the pandemic.”

In addition, Kohler noted the rise in living costs was almost the same for all groups in Australian society, no matter their income levels.

Shoppers are seen in the Pitt Street Mall in Sydney, Australia, on Dec. 26, 2022. Roni Bintang/Getty Images

This situation was different from many European countries where lower-income households had been affected more significantly by higher energy prices than those with high incomes.

As Kohler noted how broad the impact of price growth was on Australian society, she said the central bank expected inflation to reach its peak in December 2022 and would start to decrease in 2023.

In the 2022 December quarter, the annual inflation rate stood at 7.8 percent, up from 7.3 percent in the previous three months.

While inflation hit the highest level in Australia since 1990, it was still below the eight percent forecasted by the RBA.

More Interest Rate Rises for Mortgage Holders

Regarding the mortgage situation, the RBA indicated that borrowers would likely see further interest rate hikes in 2023 as the bank continued its efforts to curb inflation.

Kohler said while the RBA was aware of the stress borrowers were under, it was necessary to raise interest rates to ensure high inflation would not remain.

Additionally, the RBA estimated that the fixed-rate mortgages of over 800,000 households, an equivalent of $350 billion worth of credit, would expire in 2023, forcing borrowers to enter into more expensive variable-rate loans.

Given the current economic conditions, financial markets have expected to see another rate hike in February and the following months.

Westpac, one of the big four banks in Australia, has predicted that the RBA would lift the official cash rate by 0.25 percent in February and March, taking it from the current 3.1 percent to 3.5 percent.

What Other Parts of the Community Say About High Inflation

Also attending the parliamentary hearing were representatives from the retail industry, charities and consumer groups, who gave their insights on the impact of inflation.

Paul Harker, the chief commercial officer at Australia’s largest supermarket chain, Woolworths, said his company had not found any noticeable change in consumers’ s shopping habits.

However, he noted that households would likely start to reduce their spending, as shown in customer surveys.

“Customers were expressing intentions around needing to adjust their purchasing patterns, behaviours, and the like,” he told the Committee on Cost of Living.

Customers line up to order seafood at Sydney Fish Market in Sydney, Australia, on Dec. 24, 2022. Jenny Evans/Getty Images

Australian Council of Social Service chief Cassandra Goldie said low-income households were struggling even before inflation took off.

She added that welfare recipients were often skipping essentials due to lack of money and called for the federal government to raise JobSeeker and other support payments to help this vulnerable group of people.

Meanwhile, Energy Consumers Australia policy director Jacqueline Crawshaw said households and businesses were under pressure from rising energy bills.

She also cited an energy user survey, saying that most people did not expect the transition to renewables to result in higher energy prices.

“They actually see addressing climate change as something that they expect to happen, that they want to happen, they also expect the lights to stay on, but they also expect it to be affordable,” Crawshaw said.

“They don’t expect to have to trade off on those things.”

Liberal senator and committee chair Jane Hume said living costs were Australians’ top concern amid record-high inflation.

“Prior to the election, Labor said they had the answers. It seems to be getting worse. It’s the worst inflation figure we have seen since 1990,” she told Seven News.

“At the beginning of the year, with people going back to work and school, Australians are feeling the pinch of the grocery take-out, petrol bowsers, paying their bills and mortgages.”