Moody’s Investors Service believes affordability will continue to deteriorate as property prices rise further while lending rates and household incomes stay broadly steady
An inflation shock in Australia would make it even harder for people to enter the housing market if it resulted in higher interest rates, a global credit rating agency has warned.
As it is, Moody’s Investors Service believes affordability will continue to deteriorate over the next few months as property prices rise further while lending rates and household incomes stay broadly steady.
Wage rises on the back of a rebound in economic activity as states relax lockdown curbs could help cushion the impact of price increases, Moody’s analyst Pratik Joshi says. Conversely, an ‘expected inflation’ shock could raise mortgage lending rates from current record-low levels, thereby further weakening housing affordability.
Consumer inflation expectations, as measured by the weekly ANZ-Roy Morgan survey, stand at their highest level since 2014.
The Australian Bureau of Statistics (ABS) will release the consumer price index for the September quarter on Wednesday.
Economists’ forecasts point to a 0.8 per cent increase in the quarter, driven by increasing fuel, food, household furnishings, and alcohol and tobacco prices.
While this would see the annual rate ease to 3.1 per cent compared to the pandemic-related 3.8 per cent spike as of the June quarter, it would still remain at the top end of the RBA’s (Reserve Bank of Australia) two to three per cent inflation target.
But underlying inflation is likely to remain subdued.
Predictions centre on underlying inflation rising 0.5 per cent in the September quarter to 1.9 per cent annually.
However, financial markets see upside risk to these forecasts, particularly in the light of New Zealand’s inflation result, which saw annual inflation spike to nearly five per cent and the highest since 2011.
We doubt that Australia’s CPI print will show anything like the same sort of broad-based strength and, critically, underlying inflation is still expected to be below the bottom edge of the RBA’s two to three per cent target band, HSBC chief economist Paul Bloxham said.
He said: Although Australia and New Zealand are often grouped together from a global markets perspective, this superficial view can sometimes hide quite stark economic divergences.