Rates on knife edge: Big bank’s shock inflation call

1 week ago 7

The vast majority of mortgage repayments hang in the balance on variable rate loans.

A major Aussie bank has issued a shock inflation call that could trigger a February rate hike and send mortgage repayments soaring – even as economists remain bitterly divided.

Commonwealth Bank has broken ranks to tip inflation will land in the danger zone when the Australian Bureau of Statistics official data drops, predicting the critical quarterly trimmed mean inflation figure will hit 0.9 per cent.

That is the precise trigger that banking rival ANZ has publicly stated would make a February rate hike “more probable”.

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Now ex-governor Philip Lowe (right) with former assistant governor (financial system) now RBA governor Michele Bullock (left) pictured after answering to Parliament pre-pandemic. Picture: Mark Graham/Bloomberg via Getty Images.

“We expect the policy‑relevant quarterly trimmed mean CPI to have risen by 0.9 per cent/qtr in Q4 2025,” a CBA Economics statement said. “While this represents a modest step down from the 1.0 per cent/qtr increase in Q3 2025, it remains well above the pace consistent with the RBA achieving its inflation target.”

“On an annual basis, trimmed‑mean inflation is expected to lift to 3.3 per cent, from 3.0 per cent in Q3 2025” with headline inflation jumping to 3.8 per cent annually in the December data – to sit above the consensus forecast of 3.6 per cent circulating among economists.

Both figures also sit well above the Reserve Bank’s 2-3 per cent target range, putting immense pressure on Governor Michele Bullock to act.

“We expect the CPI print will confirm that underlying inflation pressures are strong, with this seeing the RBA hike the cash rate at its February meeting. However, this decision could be finely balanced,” a CBA Economics statement said.

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ASX RBA rate tracker swung to a hike off employment data, with predictions this will swing completely if inflation comes down the way CBA expects. Source: Canstar.com.au

The stakes are high for millions of mortgage holders, the vast majority of whom are on variable interest rates and therefore subject to almost immediate rate hikes should the Reserve Bank board choose to increase the cash rate target.

According to Canstar calculations, just one 0.25 point interest rate hike would see monthly repayments for a typical $600,000 mortgage jump by $90 a month, while a $750,000 loan would increase by $112 and $1 million mortgages would face an extra $150 a month in costs.

The four majors have split with CBA and NAB tipping a hike in February while Westpac expects rates to hold at the February meeting. ANZ has not made an explicit call but says the 0.9 per cent figure would make a hike “more probable”.

All eyes now turn to 11.30am Wednesday morning, when the Australian Bureau of Statistics will reveal whether CBA’s forecast proves accurate – and whether millions of mortgage holders face another painful hit to their household budgets.