Australian households are facing a severe financial squeeze as rising interest rates and petrol prices strip more than $1bn a month from budgets, with economists warning of increased recession risks. The Reserve Bank of Australia (RBA) has delivered back-to-back rate hikes, pushing the cash rate back to 4.1%, while petrol prices have surged past $2 per litre in capital cities due to the US war on Iran.
First-home buyer Dougal Warby, who purchased a Brisbane apartment a year ago, has seen his monthly repayments rise by over $200 as rates returned to their previous high. “Unsettled is the word,” he said, expressing concern about the lack of a long-term plan if fuel shortages persist. The RBA’s two hikes in February and March have added $180 to repayments on a typical $600,000 mortgage, according to Canstar’s Sally Tindall.
AMP modelling indicates that Australia’s near-11 million households are paying an extra $80 a month in petrol costs since the conflict began. Westpac analysis suggests unleaded petrol prices will remain above $2 per litre until June, with a prolonged war pushing them higher and halving economic growth. Inflation is forecast to reach 4.6% by June, up from 3.8% in January.
Economists are divided on the outlook. AMP’s My Bui warned that another rate hike in May would make a recession more likely, as consumer spending has already slowed. However, HSBC’s Paul Bloxham argued that a downturn is necessary to curb inflation. RBA Governor Michele Bullock acknowledged the pain for mortgage holders but stressed that failing to control inflation would be worse, though she stated recession is not the goal.
