Millions of Australian home owners are being warned to brace for Christmas and New Year interest rate hikes after the Reserve Bank delivered a mortgage squeeze in November to curb stubborn inflation.

Unveiling a fresh 0.25 percentage point lift in the cash-rate target on Tuesday, RBA boss Michele Bullock said recent data showed price growth remains ‘persistent’ despite a slowing economy.

The official rate is now 4.35 per cent, the highest level since 2011, with more than $1200 added to monthly repayments on a typical $500,000, 25-year home loan since hikes began in May 2022.

“The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly,” Bullock said.

“While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected.”

Westpac chief economist Luci Ellis, who until recently was a deputy governor at the RBA, said central bankers have responded to a “material increase” in the inflation outlook.

“Given its low tolerance for upside surprises, a stronger inflation outlook and some unexpected resilience in the real economy has induced the board to act,” she said.

Expect worse

Oxford Australia head of macroeconomic forecasting Sean Langcake said households should expect a second interest rate hike in December and possibly even more in early 2024.

He explained that the reasoning behind Tuesday’s increase – the first since June – will remain relevant next month, with inflation still too high and falling slower than the RBA had expected.

“I’d be really surprised if this was a rate hike in isolation,” Langcake said of the November rise.

“They’ve shown now they’re sufficiently worried about the inflation outlook that it met their threshold for rates to rise [in November], and we know they see a 25 basis-point move as almost imperceptible.”

Commonwealth Bank chief economist Gareth Aird is forecasting a pause in December, but said the risk is to the upside amid an RBA hiking bias.

“We acknowledge the risk in the short run sits with another interest rate increase, particularly given the RBA retains a tightening bias,” he said.

“We doubt there will be enough evidence in the data to be released over the next month that would make the case for back‑to‑back rate increases.”

Christmas squeeze tough for families

Another rate hike would be a difficult Christmas present to swallow for households already dealing with huge bill increases over the past year and record levels of mortgage stress.

It would take the cash rate target to 4.5 per cent, the highest level since November 2011, and add another $78 to typical monthly repayments, bringing the total squeeze to almost $1300.

Australian Council of Trade Unions (ACTU) president Michele O’Neil said higher interest rates were concerning for families doing it tough.

“Working families will be skipping meals, avoiding doctors’ appointments, and using the last of their savings just to afford these higher interest rates,” she said.

“Not only are big business announcing record profits and keeping prices artificially high, but they are also spending millions of dollars running a campaign of misinformation so they can keep using loopholes to cut the pay of workers.”

Inflation outlook worsens

Bullock foreshadowed the possibility of another rate hike on Tuesday, saying more work may be required to ensure underlying inflation (currently 5.2 per cent) falls back to the 2 to 3 per cent target band by late 2025.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable time frame will depend upon the data and the evolving assessment of risks,” she said.

The RBA’s renewed concern about the inflation outlook will be evident on Friday when fresh forecasts are published that will include a slight upwards revision to predicted price growth.

Where the RBA had in August predicted underlying inflation of 3.3 per cent by December 2024, that figure will now be 3.5 per cent.

Langcake said there will also need to be an increase in the forecast for inflation to end this year.

“There has to be an upwards revision,” he said.

Looking forward, fresh figures on wages growth due next week will be pivotal in RBA decision making next month, particularly amid central bank concern about the pace of services inflation.

The RBA has long feared that wages growth in excess of a pickup in productivity would flow through to stubbornly high services prices, a trend that has been seen in the US and Europe.