A dozen interest rate hikes are taking longer than usual to squeeze household budgets due to the sizeable share of fixed rate loans.

The four percentage points of monetary policy tightening since May 2022 is starting to slow growth in demand and bring down inflation, RBA assistant governor Christopher Kent said in a Bloomberg address on Wednesday.

He said it was taking longer than usual for higher interest rates to lower demand at a whole-of-economy level.

Some households had been insulated from mortgage repayment pain because they secured a low fixed rate loan during the pandemic.

But many borrowers were hurting, collectively forking over a record 10 per cent of their household disposable incomes to their monthly repayments, up from seven per cent.

This number is set to move higher as the remaining pandemic-era fixed term loans expire.

Dr Kent’s speech, which walked through the various ways higher interest rates were at work in the economy, reiterated the RBA’s focus on the “obvious” cash flow channel.

Australia is unlike many other countries with its prevalence of variable rate mortgages and fairly short fixed-rate terms, which make households responsive to higher interest rates that force them to pay more on their debt.

Dr Kent said many borrowers had had to cut back on spending to meet higher mortgage payments and account for the rising cost of living.

“This has led to slower growth in demand for goods and services,” he said.

The 400 basis points of interest rate hikes are expected to slash household spending by between 0.4 per cent and 0.8 per cent a year, RBA modelling suggests.

He said the effect of slowed demand growth on inflation was building, with retailers contacted via the bank’s liaison program starting to discount prices as consumers pull back.

The consumer sector has been weakening as highlighted in official retail trade data, although other indicators are hinting at relative resilience.

The monthly CommBank Household Spending Insights index, based on transaction data from the bank’s customers, has been proving stronger than expected.

Inflation was helping the indicator move higher, CBA economist Stephen Halmarick said, but the tight labour market was also likely playing a role by keeping most people in jobs and attracting decent pay rises.

Consumers were also likely dipping into their savings accumulated the pandemic to support their spending, he offered.

The index picked up 0.5 per cent in September and the monthly increase has stabilised at 0.5 – 0.6 per cent since June, up from the 0.2 per cent average growth from February to May.

The September result was helped along by the school holidays and the AFL and NRL finals that helped push hospitality spending up.

“Although the annual growth rate of spending remains weak, the lift of the index in September shows that the risk of a higher RBA cash rate remains,” Mr Halmarick said.

The full set of consumer price data for the September quarter, plus wages data, will be the critical inputs into the central bank’s coming interest rate decisions.

CBA’s central case is that the RBA stays on hold at 4.1 per cent for an extended period but other economists are expecting one more hike in the cycle.

Dr Kent also kept the door open to more tightening as consistent in recent RBA communications.

“The board is paying close attention to economic developments here and overseas, and some further tightening of monetary policy may be required to ensure that inflation, which is still too high, returns to target in a reasonable time frame,” he said.

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