Millions of Australian families could be spared another crushing hike in interest rates next week, as experts predict the Reserve Bank will pause for a second straight month amid easing inflation.

When RBA governor Philip Lowe announced a pause in the cash rate target at 4.1 per cent in July, he said central bankers wanted time to assess how fast prices were rising over the June quarter.

Those figures were published last week, revealing inflation is falling faster than even the RBA had anticipated as fears about rising wages growth feeding into services prices fail to materialise – yet.

That has economists predicting that it will be difficult for the RBA to justify an interest rates hike in August, with a Finder survey of experts finding 72 per cent think central bankers will do nothing.

University of New South Wales senior lecturer Nalini Prasad said last week’s inflation data showed the 12 rate hikes passed through by the RBA since May 2022 are now working in the economy.

“Inflation has slowed down in the past six months, suggesting that previous interest rate rises are having an effect,” she said.

“The RBA has indicated that they are likely to pause increases in interest rates to see the effect on inflation.”

Welcome interest rates reprieve

Not all experts are predicting a rate pause in August.

But one would be welcome news for home owners after more than $1200 has been added to repayments on a typical $500,000, 25-year home loan in the RBA’s fight against high inflation.

About 1.43 million Australians are already experiencing mortgage stress after the historic rate increases passed to date, according to Roy Morgan, which says almost a million are “extremely at risk” of default.

“If the RBA does raise interest rates again next week by 0.25 percentage points Roy Morgan forecasts mortgage stress is set to increase to over 1.51 million mortgage holders,” Roy Morgan’s chief Michele Levine said.

More hikes to come?

Most economists are expecting a pause in August not only because inflation is easing, but also due to mounting evidence that the economy is slowing rapidly in response to higher rates.

Figures published by the Australian Bureau of Statistics (ABS) on Friday revealed retail spending fell 0.8 per cent in June amid a sharp consumer pullback on discretionary spending.

However, while most economists are expecting a rate pause in August, there are still fears of further rate hikes later this year with inflation still running about twice as fast as the RBA wants.

Queensland University of Technology’s Noel Whittaker said that while the RBA is likely to pause in August, central bankers will probably resume hiking in September because inflation is still high.

“July has been a big month for price increases, but they are not reflected in last week’s CPI figures,” he said.

“But they will be in play at next month’s board meeting … we are not out of the woods yet.”

Some other respected forecasters are even predicting a hike next month, including Westpac chief economist Bill Evans, who said on Friday that the RBA heads into next week with a “tightening bias”.

“We had a similar situation at the May board meeting,” he said.

“Following a material fall in annual headline inflation in the March inflation report, markets dismissed the possibility of a rate increase in May.

“After all, headline inflation had fallen from 7.8 per cent to 7.0 per cent in a single quarter.

“But the board surprised with a hike, having the benefit of the more detailed quarterly report, which showed a further lift in services inflation (5.5 per cent to 6.1 per cent).”

Commonwealth Bank forecasters are also expecting another rate hike, highlighting that whatever decision the Reserve Bank makes it will be a close call either way.

The RBA will deliver its August interest rates decision on Tuesday at 2.30pm AEST.