a graphic<\/a><\/p>\nHome ownership is in decline, meaning more Australians are renters whose spending is not directly hit by higher mortgage rates.<\/p>\n
One in three households own their home debt-free and benefit from higher interest on their savings. Commonwealth Bank data indicates older Australians and debt-free homeowners have steadily increased their spending this year.<\/p>\n
Will falling house prices discourage spending?<\/p>\n
The slide in house prices is a sign that interest rates and higher borrowing costs are directly restricting economic activity, according to David Bassanese, the chief economist at BetaShares.<\/p>\n
House price slides are also an indirect channel for hikes to slow spending as homeowners tend to cut back when falls in home values make them less wealthy than they had been. RBA research suggests a 10% fall in housing prices \u2013 which is expected by mid-2027 \u2013 will cut consumption by 1.5%.<\/p>\n
Bassanese says consumer spending does not appear to have slowed yet by as much as past RBA models would imply. \u201cWe\u2019re probably not seeing a major effect yet, but in theory, it should be starting to happen,\u201d he said.<\/p>\n
The \u201cwealth effect\u201d of interest rates is typically slower-moving than the cashflow effect.<\/p>\n
But most homeowners are also wealthier than they were two years ago, with the median national price back to where it was in September.<\/p>\n
What about exchange rates?<\/p>\n
The Reserve Bank says the most important effect of interest rate rises is through the exchange rate. Higher interest rates tend to push up demand to invest in Australia, lifting the Australian dollar, making imports cheaper.<\/p>\n
But the dollar has been fairly stable against other currencies because foreign central banks like the US Federal Reserve are also lifting their own interest rates.<\/p>\n
The Australian dollar rose from 65 US cents in November 2025 to 72 in May 2026, after the first three RBA rate rises but has fallen to 69 US cents. It\u2019s followed a similar path compared to an index of Australia\u2019s trade partners, include China, Japan, Europe and South Korea.<\/p>\n
\u201cWe\u2019re raising rates, but so is everybody else,\u201d Bassanese says. \u201cOur currency is not especially strong, although it has lifted somewhat over the past year.\u201d<\/p>\n
How does higher unemployment stop inflation?<\/p>\n
Interest rate rises aim to push up unemployment but the hikes have had little effect this year.<\/p>\n
More jobseekers make it easier for businesses to find workers without lifting wages. Higher wages would be passed on as higher prices for customers so more unemployment tends to mean less inflation.<\/p>\n
But the jobs market has been surprisingly strong. Health and care sectors have rapidly hired thanks to bigger demand and government subsidies while productivity is going backwards, forcing businesses to hire more workers to keep up production.<\/p>\n
The RBA governor, Michele Bullock, has said she wants to see a small increase in jobless rates so there is less pressure from wages on prices, drawing criticism from unions.<\/p>\n
Unemployment increasing from 4.6% to 5% would represent an extra 60,000 people out of work if the workforce stayed the same size.<\/p>\n
But Bullock said after September\u2019s rate hike that she does not expect job losses, instead hoping job creation will slow and more people will look to join the workforce, leaving jobseekers searching for longer periods.<\/p>\n
Markets expect only one more rate rise and not until May 2027. But the Deutsche Bank strategist Lachlan Dynan warns rate rises\u2019 weaker effects add to the risk of another hike.<\/p>\n
\u201cThe Australian household sector has been more resilient to hikes than many expected,\u201d Dynan says. \u201cRisks to RBA [rates] are back to being skewed to the upside in our view.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Interest rates have risen to 15-year highs and are pushing up mortgage default risks \u2013 but household spending…\n","protected":false},"author":2,"featured_media":629488,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-629487","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/629487","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=629487"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/629487\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/629488"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=629487"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=629487"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=629487"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}