As the year comes to a close, households across Australia are eagerly anticipating some relief from the relentless increase in costs. Unfortunately, the latest data from the Australian Bureau of Statistics suggests that this hope may be dashed, with annual inflation surging above 5% once again.

The rising costs of rent, fuel, food, and services have been relentless, leaving many wondering how they will make ends meet. We will delve into the recent inflation data and its implications, with a particular focus on how it could affect interest rates and, consequently, the financial well-being of Australian households.

Monthly inflation data released by the Australian Bureau of Statistics in August showed that the consumer price index (CPI) had risen by 5.2% in the 12 months leading up to August. This was a notable increase from the 4.9% reported in July, marking the first acceleration in inflation since April.

The underlying concern is that while prices for discretionary items may be easing, the cost of essentials remains stubbornly high. This increase in inflation is primarily attributed to significant spikes in the prices of essential goods and services.

One of the driving factors behind this inflation surge was the staggering 9.1% monthly increase in petrol prices. Diesel prices, in particular, saw a jaw-dropping 26.6 cents per litre increase during August, while unleaded petrol prices also rose by 17 cents per litre. These surges in fuel prices are felt by all Australians, directly impacting their daily commute and the cost of transporting goods and services.

he National Australia Bank (NAB) anticipates another rate hike this year, likely to occur in November. For borrowers, this means higher interest repayments on loans, particularly for those with variable interest rates.

The so-called “mortgage cliff” has arrived, affecting many Australians who secured fixed-rate home loans during the pandemic. These loans were often locked in at historically low interest rates, sometimes less than 2%. However, as these fixed-rate terms come to an end, borrowers may face a significant increase in their interest repayments.

For instance, consider a borrower who locked in a two-year fixed rate of 1.99% with a major bank in October 2021. If they roll onto the bank’s standard variable rate at the end of their fixed term, their monthly mortgage repayments could more than double. Analysis conducted by realestate.com.au has shown that this increase could amount to tens of thousands of dollars over the course of a year.

For example, a borrower with a $500,000 home loan from a major bank in October 2021 could see their monthly repayments jump by a staggering $2,017 if they roll onto the bank’s standard variable rate of 8.55%. That’s over $24,000 per year in additional interest costs.

However, there is an alternative: refinancing to a lower interest rate. If the same borrower refinanced to the bank’s lowest basic variable rate of 6.44%, their repayments would still increase, but by a more manageable $1,295 per month or $15,540 per year, nearly $10,000 less than the standard variable rate.

The rising costs of essential goods and services, coupled with the resurgence of inflation, are posing significant challenges to Australian households. With interest rates expected to increase further, borrowers need to be prepared for higher mortgage repayments.