RBA Rate Hike Risk Rises as Inflation Stays Hot

With headline CPI still at 4% and unemployment falling to 4.4% in May, Australia's mortgage holders face renewed risk of further rate rises before year's end.

Australia's mortgage holders are facing renewed pressure after this week's economic data painted a mixed but concerning picture — with inflation remaining stubbornly above the Reserve Bank of Australia's target range and unemployment edging lower rather than higher, complicating any path toward rate relief.

Australian Broker reported that the Australian Bureau of Statistics (ABS) released its latest consumer price index (CPI) figures on Wednesday, showing headline CPI rose **4%** in the year to May — easing slightly from 4.2% the month before, but still well above the RBA's target range of **2% to 3%**. Trimmed mean inflation — which strips out volatile price movements and is widely considered a more reliable measure of underlying pressures — actually *increased* to **3.6%** in the 12 months to May, up from 3.4% in April.

The RBA left its official cash rate (OCR) on hold at **4.35%** at the June meeting after delivering three consecutive rate hikes earlier in the year. But Governor Michele Bullock signalled the board had not "ruled out further tightening in monetary policy if that is what is required to get inflation down."

What's Driving Prices — and One Bright Spot

The cost categories bearing down hardest on households are energy and housing. Electricity surged **21.1%** annually as earlier Commonwealth and state rebates ended and household energy relief measures expired. Housing costs overall climbed **6.5%** for the year — one of the highest annual increases in the print. New dwelling prices rose **5.6%** year-over-year.

Annual goods inflation ran at **4.2%**, while automotive fuel rose **7.7%** annually — though that was a dramatic improvement from the 18.6% annual rise recorded in April. On a monthly basis, fuel fell **11.9%** in May, following a 7% fall in April, helped by the halving of the fuel excise from 1 April and softer global oil prices. ABS head of prices statistics Rachael McCririck said: "These monthly falls include the impacts of the halving of the fuel excise on 1 April and lower world oil prices in recent weeks."

The jobs data released the following day added another layer of complexity. The ABS labour force report for May showed unemployment fell to **4.4%** (seasonally adjusted), down from 4.5% in April, with an additional **18,300 Australians** finding work during the month. The labour participation rate rose to **66.7%**, up from 66.6%.

Unemployment varied considerably by state: Tasmania recorded the highest rate at **5.3%**, followed by Victoria at 4.9% and Western Australia at 4.6%. Queensland recorded a rate of **3.7%**, followed by South Australia at 4.2% and New South Wales at 4.3%.

The combination — inflation above target and unemployment falling rather than rising — narrows the path for rate cuts many borrowers had been hoping for.

What the Banks and Brokers Are Saying

The major banks remain split on what happens next. Westpac is anticipating a **rate hike at the August meeting** (scheduled for 10–11 August). Commonwealth Bank of Australia (CBA) and ANZ both expect an extended hold. National Australia Bank (NAB) also expects a hold at the upcoming meeting, but is forecasting the RBA's next move will ultimately be a **decrease** — though the timing remains unclear.

On the street, broker sentiment leans toward further rises. Cara Julian, founder and mortgage broker at Melbourne-based Brava Finance, told Australian Broker: "I absolutely think that we will have another one to two rate increases. It's not over yet." She noted that typically employment and inflation data move in opposite directions, but "that's not happening at the moment," adding uncertainty to any forecast.

Bernard Desmond, founder and chief executive of Melbourne-based Blank Financial, said while the latest CPI was not materially going to change the home lending outlook immediately, his firm was still expecting "a couple of rate hikes in the near future. The way the inflation is tracking, it's probable to have at least one or two rate hikes."

On the other side of the debate, ANZ economists Aaron Luk and Adam Boyton wrote in a joint research note: "We maintain our view that the cash rate will remain on hold at the August meeting." CBA economist Harry Ottley wrote: "At 4.4%, the labour market remains a little tight and below our (and the RBA's) estimate of the non-accelerating inflation rate of unemployment. But it is creeping higher."

Gordon MacVicar, owner and broker at Coolum Beach and Noosaville Mortgage Choice, said he did not expect near-term RBA movement: "I think they're done. They condensed what they needed to do over three consecutive meetings and I think they need to wait and see how that flows through. Because we're not going to get the full effects of these three rate increases for another few months."

What Borrowers Should Do Now

The uncertainty is already changing how Australians manage their mortgages. Desmond said clients are increasingly "opting for fixed rate terms" and restructuring to longer loan durations: "We're seeing big activity in the refinancing market. A lot of customers are refinancing their loan terms to 30 years just to manage their cash flows."

MacVicar confirmed a similar trend in Queensland, noting that refinancing and debt consolidations have picked up across the Sunshine Coast. First home buyer activity has slowed materially — "a large portion of the first-time homebuyers have disappeared over the past 18 months" in his market — while existing owners reassess their exposure to higher rates.

If you're feeling squeezed by your current mortgage rate, now is a sensible time to run the numbers. Use our [refinance savings calculator](/calculators/refinance-savings) to see how much you could save by switching lender or product. You can also [compare home loan options](/home-loans/cheapest) to benchmark what a competitive rate looks like for your situation. For first home buyers still planning to enter the market, check your [borrowing power](/calculators/borrowing-power) under current rate conditions before committing.

With the RBA's next scheduled meeting on **10–11 August**, borrowers have a narrow window before any potential decision. Speaking with a broker who can compare your current loan against the full market is a practical first step in managing rate uncertainty.

*Source: [Australian Broker – Interest rate hikes back in focus as inflation persists](https://www.brokernews.com.au/news/breaking-news/interest-rate-hikes-back-in-focus-as-inflation-persists-289570.aspx)*