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Australia faces the renewed possibility of interest rate hikes as the latest data from the Australian Bureau of Statistics (ABS) shows a spike in the Consumer Price Index (CPI) to 4% for May. This marks the third consecutive month of increasing annual inflation, reaching its highest point since November last year.

Electricity, automotive fuel, rents, and insurances led the price increases, with fruit and vegetables also seeing a notable rise.

However, when volatile items and holiday travel are excluded, the CPI slightly decreased from 4.1% to 4.0%, a key figure for the Reserve Bank of Australia (RBA) in its monetary policy considerations.

The monthly CPI data, which measures only specific baskets of goods representing between 62% to 73% of the consumer price index, hints at potential rate increases.

Borrowers are advised to brace for the impact, with predictions suggesting not just one, but potentially two more rate hikes by the end of the year. This scenario could significantly increase monthly mortgage repayments for homeowners.

For instance, an owner-occupier with a $500,000 loan who hasn’t renegotiated their rate since the hikes began might see an increase of $1,360 in monthly repayments after 15 hikes, including four doubles.

Similarly, for loans of $750,000 and $1,000,000, monthly payments could rise by $2,040 and $2,720 respectively.

== Research Director, Sally Tindall, suggests that borrowers proactively seek rate cuts with their lenders and consider the impact of upcoming quarterly CPI figures.

“Next month’s quarterly CPI will be crucial for the RBA. If it’s off target, we might see a rate hike as early as August,” Tindall said.

Borrowers can prepare by renegotiating lower rates, utilizing stage three tax cuts, and reviewing their home loan features. With many lenders still offering competitive rates, refinancing could be a viable option to mitigate rising costs.

“The Board is likely to have wanted to take the time to see how the extra cash from the stage three tax cuts and the electricity rebate impacted household consumption, but with the clock ticking, it could well speed up any decision to hike,” Tindall added.

As the RBA’s next meeting approaches on 5-6 August, borrowers should review their mortgages and consider refinancing options to secure the best possible terms in the face of impending rate hikes.

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