The Link Between Inflation and Interest Rates: Implications for Car Loan Interest Rates
After nine consecutive rate rises by the Reserve Bank of Australia (RBA) most Australians will by now fully appreciate that the rate of inflation is inextricably linked to interest rates. The RBA has been increasing rates to address soaring inflation. When the RBA increases rates, the impact is felt through most lending markets including car loan interest rates.
Buyers in the market for a new vehicle with finance will likely be keen to stay across what is happening with inflation as a possible indication of what could follow regarding interest rates. The latest inflation figures – the Consumer Price Index (CPI) for January, were released by the Australian Bureau of Statistics (ABS) on 1 March and it may appear good news.
A fall in the rate of inflation from 8.4% recorded at the end of December has been recorded to the end of January. The rate to the end of January was 7.4%. But there are calls for caution from Treasurer Jim Chalmers in interpreting the figures.
ABS Report – CPI January 2023
The ABS reported the CPI indicator, the figure used for inflation was 7.4% to the end of January 2023. This is down from 8.4% to the end of December. However, as noted by the Head of Price Statistics for the ABS, Michelle Marquardt, this is still the second-largest annual increase since the monthly reporting of the CPI commenced in September 2018.
According to Ms Marquardt, this indicates that inflation is continuing at high levels. The major contributors in the reporting period were, in order of significance – housing, food and non-alcoholic beverages and recreational and cultural. The housing increase of 9.8% was less than the 10.1% recorded for December. The most notable contributors are rents and new dwellings.
Ms Marquardt notes stronger growth in rents than 12 months ago but increases in new dwellings are moderating in comparison to a year ago. In the food area, the 8.2% figure for January is below the 9.5% December figure. Fruit and veg prices fell 2.3% in the reporting period. Holiday travel and accommodation continue to push prices in the recreation and culture category. But the 17.8% January figure is significantly less than the extremely high 29.3% December result.
As Ms Marquardt noted, the rate of CPI inflation can be impacted by volatility in the prices of some goods, such as fruit and vegetables, fuel and the prices for holiday airfares and accommodation. She said it can be helpful, for some items to be excluded from what is referred to as ‘headline inflation’ to reveal what is known as ‘underlying inflation’.
Those that follow the RBA monthly statements will have noted the Board’s references to underlying inflation. Underlying inflation for January was 6.7% after holiday travel was excluded. The rate was 7.4% at the end of December.
Treasurer Jim Chalmers's Comments
On the release of the latest inflation figures, the Treasurer advised caution in interpreting the outcome. He said that while the rate was higher than the government would like, they were hopeful that inflation had peaked. The caution advised is around the volatility which can exist in individual monthly figures.
Treasurer Chalmers said that although inflation appears to have peaked, a rate is likely to be around for longer, but the January results are encouraging.
In commenting on the inflation figures, the Treasurer also commented on the latest economic growth figures which were also released by the ABS on 1 March.
The figures reveal a moderation in growth with growth in the December quarter of 0.5%. The Treasurer said this was inevitable due to the global situation of high inflation increasing interest rates and unpredictability.
Significance of Car Loan Interest Rates
The latest inflation figures and the latest GDP data will be assessed by the RBA Board in making its March rate decision. At its February meeting, the RBA stated that further rate rises would be required in the months ahead. This was despite acknowledging that inflation had likely peaked as per the December 2022 figures. All eyes will be on the 7 March meeting for the Board’s next decision. Will it leave rates unchanged as was ‘on the table’ back in December, or continue with its run of rises?
Despite a drop, inflation remains high with continued budget pressure and continued focus for car buyers to source the cheapest car loan interest rates, whether it's through car finance chattel mortgage, hire purchase car finance or unsecured car finance. Achieving the cheapest rates means lower monthly repayments and less pressure on the household budget or business cash flow.
Banks and lenders make their own decisions regarding changing their rates in their different markets following RBA rate decisions. This means variations across the market and potentially a more time-consuming task for buyers to source which lender is offering the cheapest rate at the time, especially when considering options like no Doc Car Financing Australia. We have accreditation with more than 60 car finance lenders and assist both business and private buyers in securing the cheapest car loan interest rates and most affordable finance.
Navigating Used Car Finance Rates Amid Inflation and Interest Rate Fluctuations
Amid the impact of inflation and interest rates on the car loan market, used car finance rates are similarly affected. Buyers seeking financing for pre-owned vehicles should closely monitor fluctuations to secure the most affordable deals. By turning to trusted lenders like Jade, which adjust their rates in response to economic factors, prospective buyers can find the most competitive financing options. Choosing Jade for their financing needs allows borrowers to enjoy more manageable monthly payments and reduced financial strain, ensuring a smoother car ownership experience.
Contact Jade Car Loans 1300 000 003 for cheaper car loan interest rates.
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