Rising inflation has added fuel to the prospect of a February interest rate hike but the RBA will be hard pressed to slow down the Australian economy, says ING Direct head of treasury Glenn Baker.
The consumer price index rose 0.9 per cent in the December quarter with a total rise of 3.0 per cent for the year to December quarter 2007.
Core inflation leapt 3.6 percent on average in the year to December – well ahead of the expected 3.3 per cent.
“Debt levels being carried by Australians at the moment are quite high, so any adjustment to interest rates will have a potent effect on the economy,” said Mr Baker.
But while Mr Baker believes consumer spending should slow in the event of a rate rise he is confident the mortgage market will remain reasonably strong.
High immigration numbers and strong employment figures are supporting demand in the housing market. An early interest rate hike for 2008 according to Mr Baker is unlikely to have a lasting effect when it comes to financing property.
“We’ve already seen two rate rises in the latter part of 2007 as well as increases in cost from most lenders due to the higher cost of funding.
“Mortgage borrowers might baulk initially at an early rate rise but they are likely to adjust to higher costs,” Mr Baker said.
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