Alan Kohler ABC finance guru: Interest rates will FALL in Australia and inflation is going down 

Respected finance guru predicts interest rates will be FALLING in Australia by this time next year – and explains why inflation ‘has peaked’

  • ABC’s Alan Kohler predicts the RBA will be cutting interest rates within a year
  • He says annual Consumer Price Index rise disguised a drop in inflation rates
  • On Wednesday it was revealed CPI had risen from 5.1 per cent to 6.1 per cent
  • But Kohler pointed out quarterly inflation fell from 2.1 per cent to 1.8 per cent

ABC finance guru Alan Kohler has predicted mortgage payments will fall next year after the sudden short sharp shock of the current economic crisis

ABC finance guru Alan Kohler has tipped mortgage payments will fall next year after the sudden short sharp shock of the current inflation crisis.

Interest rates are forecast to be hiked up yet again in the wake of the latest runaway 6.1 per cent cost of living data when the Reserve Bank of Australia meets next week.

The Reserve Bank’s cash rate has soared from a record low of 0.1 per cent in April to its current three year high of 1.35 per cent, adding hundreds to the cost of the average monthly home loan repayments.

RBA governor Philip Lowe is expected to increase that by at least another 50 basis points to 1.85 per cent on Wednesday, with dire predictions it could hit more than 3 per cent by Christmas.

But despite the doom and gloom, Kohler is confident interest rates will stay below 3 per cent – and says the RBA will be slashing loan rates again within months. 

‘This time next year the RBA will be cutting interest rates,’ he tweeted on Thursday.

The financial analyst’s prediction comes despite the cost of living surging higher with data released on Wednesday showing a rise from 5.1 per cent to 6.1 per cent.

The figures are the worst in more than 30 years as the world fights global inflation fallout from the pandemic which saw governments stoke their economies with extra cash to avert financial disaster.

But Kohler says the annual Consumer Price Index figure actually disguised a drop in quarterly inflation in Australia, from 2.1 per cent in March to 1.8 per cent in June.

He now believes inflation in Australia has peaked after the initial surge was driven by rising fuel prices caused by Russia’s war on Ukraine, and food prices spiking after the recent floods.

The RBA's cash rate has soared from just 0.1 per cent in April to its current 1.35 per cent, adding hundreds to the cost of the average monthly home loan repayments

The RBA’s cash rate has soared from just 0.1 per cent in April to its current 1.35 per cent, adding hundreds to the cost of the average monthly home loan repayments

The economy still has a ticking time bomb with the return of the 22c fuel tax (plus GST) in September when its temporary suspension by the previous Coalition government runs out and threatens to add even more inflationary pressure.

But Kohler still believes there is an end in sight to the crisis.

‘Missing from the yelling about 6.1 per cent is the fact that inflation is declining,’ he tweeted on Wednesday.

‘Prices rose 2.1 rose in the March quarter, 1.8 per cent in June. Probably less in September. Annual rates simply affected by the base effect. 

‘Inflation has peaked.’

His comments were echoed by Gareth Aird of CBA Economics who said the RBA should halt their aggressive rises when their cash rate hits 2.5 per cent.

‘If they pause there and spend a few months just watching the data, then I think they won’t end up taking the cash rate any higher,’ he told Kohler’s Eureka Report.

‘They’ll see that consumer spending is coming off, or certainly on discretionary spending, it’s coming off.

‘They’ll see that house prices are continuing to fall. They’re already falling at a pretty rapid rate.

Home loans are expected to increase by at least another 50 basis points when the RBA is tipped to raises the cash rate to 1.85 per cent on Wednesday, with dire predictions it could hit more than 3 per cent by Christmas

Home loans are expected to increase by at least another 50 basis points when the RBA is tipped to raises the cash rate to 1.85 per cent on Wednesday, with dire predictions it could hit more than 3 per cent by Christmas

‘Consumer confidence is quite weak and eventually that’s going to weigh on the demand for labour. 

‘As long as they pause at that level, around 2.5 per cent, I don’t think then we see rates go any higher.

‘And then at some point next year in the second half of next year we think that rates are going to actually end up coming back down.’

But Mr Aird had a grim warning if rates continued to rise beyond 2.5 per cent towards the 3.5 per cent by Christmas predicted by ANZ Bank last week.

He said it was possible the RBA could hit 3.5 per cent and then realise their error and quickly correct – but he said there would be serious consequences if they did not. 

Gareth Aird of CBA Economics had a grim warning for families if rates continued to rise beyond 2.5 per cent towards the 3.5 per cent by Christmas predicted by ANZ Bank last week

Gareth Aird of CBA Economics had a grim warning for families if rates continued to rise beyond 2.5 per cent towards the 3.5 per cent by Christmas predicted by ANZ Bank last week

‘I think we’d have a hard landing,’ he said. ‘I think we’d have a recession if the cash rate was to get to those sort of levels and stay there.

‘Consumer spending would go backwards with the cash rate at those sort of levels.  

‘It’s almost impossible for the economy to grow if the volume of household consumption is going backwards. 

‘So, if the cash rate was to get there and stay there for a while, I think we’d be talking about a recession in 2023 as the base case.’

The prospect of the RBA walking such a treacherous tightrope on interest rates had Kohler worried though.

He admitted: ‘I must say, there’s nothing in the Reserve Bank’s behaviour over the past 10 or even 20 years to suggest they won’t make a policy mistake.’ 

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