Might interest rates have to keep rising?

Gareth Kiernan of Infometrics writes:

Has the Reserve Bank done enough in its battle to bring inflation back under control? Data over the last month has been inconclusive about whether demand is softening sufficiently to limit the ability to raise prices at pace. …

We have long been an advocate of targeting non-tradable, or domestically based, inflation, given it is the subset of prices that the Reserve Bank can actually influence.

Unlike headline inflation, non-tradable inflation has barely retreated from its peak, and at 6.6%pa, it remained uncomfortably strong in the June quarter.

So what if inflation persists?

The real risk lies in the possibility of a November 2023 interest rate rise being followed up with another two or three increases in the first half of 2024.

That would push floating mortgage rates to over 9%, maybe even approaching 10%.

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