Home U.S Russia's Ukraine war will push up Australian interest rates and prices

Russia's Ukraine war will push up Australian interest rates and prices

99
0


Russia’s invasion of Ukraine makes an early interest rate rise in 2022 more likely, with even a small increase raising borrowing costs by $45 a month.

Sanctions on President Vladimir Putin’s authoritarian regime have already pushed average unleaded price to record highs above $2 a litre, adding to existing high inflationary pressures in Australia.

The West Texas Intermediate price of crude oil last week climbed above $US130 a barrel for the first time since July 2008 and CommSec is predicted motorists paying, on average, $2.50 a litre for regular unleaded in ‘coming weeks’.

With petrol a key production cost component of most goods, Reserve Bank of Australia Governor Philip Lowe said Russia’s war increased the likelihood of an interest rate rise in 2022.

Russia's invasion of Ukraine makes an early interest rate rise in 2022 more likely, the Reserve Bank says (pictured are emergency services responders cleaning at a building in Kharkiv whic Russian rockets destroyed)

Russia’s invasion of Ukraine makes an early interest rate rise in 2022 more likely, the Reserve Bank says (pictured are emergency services responders cleaning at a building in Kharkiv whic Russian rockets destroyed)

‘In the last couple of weeks the Russian invasion of Ukraine is pushing up commodity prices right across the board – higher prices for energy, for base metals and for many agricultural products as well,’ he told the Banking 2022 conference.

‘Given these developments, it is plausible that interest rates will increase this year. It’s not guarantee but it’s plausible.’ 

Average capital city petrol prices have surged above $2 a litre for the first time ever, MotorMouth data showed.

Sydney’s average regular unleaded price stood at 216.5c a litre on Monday, with Melbourne slugged 212.5c a litre.

Motorists in  Brisbane were typically paying 218.3c a litre compared with 220c a litre in Adelaide, 208.7c a litre in Perth, 219.9c a litre in Hobart, 206.4c a litre in Darwin and 208.6c a litre in Canberra.

In June 2008, just before the Global Financial Crisis, daily average prices reached a record high equivalent to 212.9c a litre, once prices 14 years ago are adjusted for inflation.

CommSec senior economist Ryan Felsman said a prolonged Russian war in Ukraine could push average, capital city petrol prices to $2.50 a litre.

‘Aussie retail unleaded petrol prices continue to hit record highs, and national pump prices could lift to $2.50 a litre in coming weeks if Russia’s ‘special military operation’ in Ukraine becomes protracted or intensifies,’ he said.

 ‘All pump prices are at or near record highs today.’

CommSec senior economist Ryan Felsman said a prolonged Russian-led war could see average, capital city petrol prices climb to $2.50 a litre with capital city prices now beyond the $2 a litre mark (pictured is a service station in Melbourne)

CommSec senior economist Ryan Felsman said a prolonged Russian-led war could see average, capital city petrol prices climb to $2.50 a litre with capital city prices now beyond the $2 a litre mark (pictured is a service station in Melbourne)

With petrol a key production cost component of most goods, Reserve Bank of Australia Governor Philip Lowe said Russia's war had increased the likelihood of an interest rate rise in 2022

With petrol a key production cost component of most goods, Reserve Bank of Australia Governor Philip Lowe said Russia’s war had increased the likelihood of an interest rate rise in 2022

In late February, as Russia invaded Ukraine, average petrol prices in Sydney, Melbourne, Brisbane, Adelaide and Perth hit 182.4c a litre, then the highest retail price adjusted for inflation since 2014, new Australian Competition and Consumer Commission data released on Monday showed.

Before the invasion, Russia was the world’s third biggest producer of crude oil after Saudi Arabia and the US. 

‘Russia’s invasion of Ukraine and the OPEC cartel’s refusal to boost crude oil production, combined with recovering oil demand as countries relaxed Covid-19 restrictions, pushed February prices for both international refined petrol and average retail petrol in Australia’s five largest cities to an eight-year high,’ the ACCC said. 

Last year, average retail petrol prices surged by 41.4c a litre or 34 per cent.  

The Commonwealth Bank, Australia's biggest home lender, is forecasting a rate rise in June for the first time since November 2010. Even a small rate rise of 0.15 percentage points, taking the cash rate to 0.25 per cent, would see borrowers with a typical loan pay another $45 a month on their mortgage repayments (pictured is an auction bidder at Paddington in Sydney's east)

The Commonwealth Bank, Australia’s biggest home lender, is forecasting a rate rise in June for the first time since November 2010. Even a small rate rise of 0.15 percentage points, taking the cash rate to 0.25 per cent, would see borrowers with a typical loan pay another $45 a month on their mortgage repayments (pictured is an auction bidder at Paddington in Sydney’s east)

Australia’s headline inflation rate, also known as the consumer price index, in 2021 also climbed to 3.5 per cent, a level well above the Reserve Bank’s 2 to 3 per cent target.

Australian house price rises during the past year

SYDNEY: Up 26 per cent to $1,410,128

MELBOURNE: Up 15 per cent to $998,356

BRISBANE: Up 32.8 per cent to $828,175

ADELAIDE: Up 28.3 per cent to $648,418

PERTH: Up 8.7 per cent to $559,837

HOBART: Up 25.1 per cent to $781,069

DARWIN: Up 8.3 per cent to $569,928

CANBERRA: Up 25.4 per cent to $1,031,410

Source: CoreLogic increases in year to February 2022 for median house prices

Throughout 2021, Dr Lowe had repeatedly promised to keep the cash rate on hold at a record-low of 0.1 per cent until 2024 ‘at the earliest’. 

But now the central bank chief is worried about ‘higher pressures’ on supply-side prices as the Russian invasion of Ukraine continues.

‘We had a big supply shock because of Covid and now we’ve got another one because of Ukraine,’ he said. 

‘Inevitably, that’s going to keep CPI inflation in Australia higher than otherwise would be – it’s going to be higher right around the world.’

Higher inflation means the Reserve Bank has to act to control price pressures, which means pain for home borrowers. 

In February, Australia’s median property price stood at $728,034, CoreLogic data showed.

With a 20 per cent deposit, a borrower owing $582,427 pays $2,269 every month to the bank on a 2.39 per cent variable loan rate.

The Commonwealth Bank, Australia’s biggest home lender, forecasts a rate rise in June for the first time since November 2010.

Even a small rate rise of 0.15 percentage points, taking the cash rate to 0.25 per cent, would see borrowers with a typical loan pay another $45 a month on their mortgage repayments.

Financial markets are bracing for the cash rate to rise nine times, to 2.25 per cent, by July 2023, which would see borrowing costs on a median home rise by $700 compared with existing levels. 

Previous articleAmid LA's uptick in home burglaries, how can rich celebs stay vigilant? Security expert weighs in
Next articleUK weather: Britons to bake in 18C spring heatwave as African plume heads for UK

LEAVE A REPLY

Please enter your comment!
Please enter your name here