At its August meeting on Tuesday, the Reserve Bank of Australia (RBA), the country’s central bank, raised interest rates for the fourth straight time, the first set of consecutive hikes since 1990.
With the latest hike, monthly interest rate increases have normalized. This program, like that of central banks around the world, led by the US Federal Reserve, means ever greater financial hardship for mortgage holders and other sections of the working class, who are also hit by a surge in the cost of living and reductions in real wages. .
Tuesday’s 0.5% increase takes the cash rate to 1.85%. This is a cumulative increase of 1.75% in a third of a year, which is also the fastest since the 1990s.
In a statement announcing the move, the RBA signaled that there would be further increases to come. Analysts predict the rate will continue to rise, at least for the rest of the year, with some tipping a cash rate over 3% by the end of 2022.
Once again, the RBA and its Governor Philip Lowe touted Tuesday’s hike as a necessary measure to suppress inflation. The headline inflation rate rose to 6.1% last quarter, and the Treasury expects it to reach 7.75% by the end of the year.
But the official pretext is a decoy. The inflation crisis is fueled by specific policies implemented by the ruling elite, in Australia and abroad, which are likely to continue and deepen.
These include the US-NATO proxy war against Russia in Ukraine, which has driven up prices, especially for energy and natural gas, and supply chain disruptions. supply caused by COVID ‘let it rip’ policies that have allowed the deadly virus to circulate endlessly. , with continued waves of massive illness and death.
Above all, inflation has been fueled by the massive injection of trillions of dollars into stock markets and the coffers of the financial elite, by governments and central banks around the world.
Australia’s political establishment, led by the federal Labor government, is committed to each of these profit-driven policies. The Labor government has backed war on Russia, rejected any security measures, amid the worst coronavirus outbreak yet, and ruled out any tax on the rich, including super-profits from mining and energy companies.
An analysis by the Australia Institute, published in June, found that for the last two quarters of 2021 and the first quarter of this year, profits accounted for around 60% of the drivers of inflation in the country.
The RBA statement reiterated fanciful forecasts of continued economic growth in Australia, which are not based on any evidence and are contradicted by worsening global economic and geopolitical turmoil.
The statement, however, acknowledged that interest rate hikes would contribute to a “slowdown” in the economy, as well as an increase in unemployment. Some commentators have warned that rate hikes, if continued monthly at the current pace, could trigger an official recession.
This indicates the real reason for interest rate increases. Their goal is to drive up unemployment and cool the economy. This is to serve as a battering ram against mounting pressure from workers for wage increases, under conditions where the RBA, along with the Labor government, has insisted that annual wage increases be kept to around 3.5%.
This wage figure is just over half the headline inflation rate, signifying a widespread program of real wage cuts. In addition, the cost of living increases much faster.
Over the past year, non-discretionary inflation, for items essential to working-class households, rose 7.8%, led by motor fuel, to 32.1%. The cost of fruits, vegetables and other foodstuffs has also increased above the overall rate.
Figures reported by Nine Media show that for an average $500,000 mortgage with 25 years remaining, monthly repayments rose by $140 following Tuesday’s hike. The increase over the four hikes is $472. For a $750,000 loan, the rise was $211 this week and $708 since May, and for a $1 million loan, $281 on Tuesday and $944 this year.
Australian household debt was already at one of the highest levels in the world, even when interest rates were at historic lows. In April, Australian household debt, mostly mortgages, was around 130% of gross domestic product. The ratio of household debt to disposable income was 203% before the rate hikes.
The old regime of low interest rates and other inflationary policies fueled a speculative bubble in the real estate market. This peaked during the pandemic, with the national median home price exceeding $1 million earlier this year, an increase of $549,918 since the start of 2020. Growth has been much higher in some areas, especially the larger capitals and some high demand regional areas. .
However, partly because of rising interest rates, prices are falling. In a report on Monday, CoreLogic, a real estate analytics firm, found that median house prices had fallen 2% since early May, with a further steady decline expected.
The firm’s director of research, Tim Lawless, told the media: “Although the housing market has only been down for three months…the rate of decline is comparable to the onset of the global financial crisis in 2008. and the sharp decline of the early 1980s”. In Sydney, he added, prices were falling at the fastest rate in 40 years.
Already, an estimated 45% of households with mortgages are in trouble, spending more in total costs than they earn. Falling prices are aggravating these difficulties. Growing sections of the population are faced with the prospect of a loan, with ever-higher interest rate repayments, which exceed the value of the underlying asset it serves, their property.
In comments to the Australian Broadcasting Corporation this week, mortgage holders spoke of the deepening crisis they face. A Tasmanian labourer, Bobby Graham, had been saving for five years to buy a house in the suburban suburb of Hobart.
He described the situation as “the perfect storm – you pay the highest price because you bought at the top of the market, then there is an increase in interest rates. And it becomes apparent that everything else becomes more expensive due to inflation. The interest rate hikes were “a bit of a kick”, adding: “You are paying a lot of your income, just to maintain your house.” Like many others, Graham was already forced to cut costs to stay afloat.
The Labor government has openly endorsed the RBA’s interest rate hikes, while declaring its opposition to any general increase in real wages and its commitment to cutting social spending, aimed at making workers pay the national debt accumulated by the corporate subsidies and massive military spending measures.
In an economic statement last week, Labor Treasurer Jim Chalmers contemptuously said it would be necessary for ordinary people to swallow ‘hard drugs’ as inflation rises and interest rate hikes are continuing.
The rate hikes are part of an offensive against the working class, led by the Labor government. The other prong is the collaboration of the unions, which are doing all they can to quell a growing movement of the working class and enforce sell-out company deals that slash workers’ wages and conditions.