Many Australians will struggle to make ends meet in an economic environment of rising interest rates and when their wages are failing to keep pace with rampant inflation.
While the Morrison government and the Reserve Bank of Australia like to talk about the savings buffer that has been built during the course of the COVID-19 pandemic, the reality is many households are already finding life difficult.
A survey by financial comparison website Finder revealed almost one-in-three Australian home owners were feeling the pinch even before the RBA raised the cash rate to 0.35 per cent from 0.1 per cent last week, the first increase since 2010.
That increase will be passed on to borrowers in full by the four big banks and other lenders in the coming weeks.
Finder’s Sarah Megginson said it was likely to lead to a further rise in mortgage stress in May and June as monthly payments inflated.
“The past two years have seen a record number of buyers enter the property market, but many haven’t budgeted for a rainy day,” she said
She advised those borrowers who were seriously struggling to afford their repayments to speak to their lender straight away, as they may be able to restructure their loan and ease the pain.
The outlook does not get any easier, with the RBA indicating it will do whatever it takes to curb inflation.
It is forecasting inflation to reach 6 per cent by the end of this year, almost double what it expected just a few months ago.
As a result, JP Morgan economist Ben Jarman expects the cash rate to be increased by 0.40 percentage points at the RBA’s June board meeting, which would return the rate to its pre-pandemic level of 0.75 per cent.
By November, and after a series of further increases, he expects the cash rate to have reached 1.5 per cent.
Finance Minister Simon Birmingham conceded Australia faced huge international economic pressures.
“There is no doubting that the economic pressures around the world have fuelled inflation in a range of ways. Australia is not immune to that,” Senator Birmingham told Sky News.
The RBA has upgraded its forecast for wages growth to 3 per cent by year-end, but this would still be half the rate of inflation. It does not expect wages to outpace prices until the end of 2023.
“The key to lifting wages is lifting productivity,” Labor leader Anthony Albanese said in Sydney.
He is promising a Labor government would work with business and unions with the aim of lifting wages, convening a full employment summit and changing industrial laws to make secure work an objective.