#310 - The RBA Isn’t Done Yet…

Everyone thinks the worst is over. That the RBA is done, rates are going to stabilise, maybe even drop. But they're wrong. And if you believe them. If you think your mortgage is safe, if you think property prices are going to just keep climbing forever, if you think the cost of living is going to ease,

then you're about to get blindsided. The truth is, inflation isn't dead. It's sitting at 3.8% per annum, well above the RBA's inflation target. And the data that's coming in over the next few months is going to force them to do the one thing that will rattle every single Australian homeowner. They're going to raise rates again, not hold not cut rates. And I've been saying this on the show for a long time, and it's actually come true because that's what they recently did. So I'm

going to show you exactly how it's about to happen. The inflation data. They're looking at, the pressure they're under and what this means for your mortgage, your property value and the cost of living for you. Right now I'm Lloyd James Ross, seven figure investor and entrepreneur, and I've helped thousands of business owners and professionals turn financial stress into success. If you're stuck in old money habits, overwhelmed by investing, or unsure where to start, this is for

you. I'll give you the mindset and strategies to take control, grow your wealth, and achieve financial freedom. It's time to make your money work for you. So let's first discover what the RBA got wrong. The goal of the RBA is for stable employment and prices. That's objectively what they what they need to be doing. That's their focus. Okay. And what that includes is making sure the inflation target doesn't get out of control. Right. And making sure employment is stable. And

this is what they want to focus on primarily. Right. Their inflation target isn't just arbitrary. It's known that it's around the 2 to 3% on average, but let's say roughly about two because when it's 2%, inflation helps the economy through spending. Right. That's where the economy is healthiest. But what inflation actually is. It's the price of goods going up over time.

right, and erode your purchasing power. Ideally, you want stable inflation, not runaway prices. So not high inflation but steady 2% inflation because when that happens it encourages people to spend. But it also keeps prices fairly stable. So it doesn't erode a lot of purchasing power. And so in the 70s when it ran away it was a serious problem. And rates went back up to 17% to crush it. Okay. So the latest consumer price index, which stands for CPI Consumer Price index, which is a fancy word

for inflation. The last figure and by the way how do they calculate that is they get a basket of goods whether it be fuel and food etc. rent. And they put them into a basket of average prices and they assess the price in one year against the next year. Does that make sense. And so that's where you can determine the percentage increase in prices of things. Okay. So Australia's inflation is now 3.8% annually clearly above the target. And rising not

falling. Okay. Isn't that? Or do you feel like something's off? If inflation is still really high 3.8%, it's almost double what they're aiming for. Shouldn't the RBA have acted earlier? So that's what's caused them to hike. So here's what happened recently. They had to hike interest rates last Tuesday because of this runaway inflation. So they raised the official cash rate the reserve

Bank rate by 0.25%, taking it to 3.85%. Why? Because they had strong inflation data come out, particularly in the second half of 2025, and a tighter labour market, which means there was actually pretty good employment. Employment is rising, people are getting jobs. And

so with that in mind that is stable. And then they would want to look to stabilise prices. So what has happened since then is as they increase the rate of the reserve rate, the major banks, Commonwealth Bank, Westpac Bank said they've now incrementally increased their retail rate is what

they lend money out at. So it's hurt borrowing capacity. And of course it would make it much harder for those who already owe hundreds of thousands, millions of dollars to start paying back their mortgage. All right. So here's the slice. Most commentators are not talking about what this actually means for real people, right? Everyday people over the next 12 and 24 months. Okay, so just to give you a bit of a we just go back and revisit what's happened in the past with

inflation, with rates and with property. Over the past, say, decade, property prices have climbed dramatically. I would say some capitals have had property gains of over 100% in the last ten years, certainly even in the last five. Right. It's been a very bullish property cycle. Okay. And why interest rates matter to that is because higher rates don't just mean more expensive loans. They mean lower demand. So lower price growth in housing. And if it gets pushed far enough we start to see real

estate declines. And that's not such a bad thing. But it does hurt those with mortgages because they will have to foreclose on mortgages if they can't pay the repayment over a three month period. So you start to see these things in banks called bad debts start to go up because people start to not be able to afford their mortgages. Now, at the moment they can because rates aren't climbing too fast for them to hurt them instantly. It'll be like a slow burn over time, and what you'll start

to see is auction rates will start to fall. The days on market will start to increase, and you'll start to see a slowdown in the real estate market because people just cannot afford to borrow anymore, because rates are too high and the price of property is way too high, and or they are

defaulting and they're having to sell. And when this happens, you're going to see a price adjustment in real estate, which we need to have. However, it can cause a lot of problems for everyday people. And I believe this is what's going to happen because if they don't increase rates, then we're going to see price increases of everyday goods to explode. And we're going to have a real inflation problem. Right? We don't want to see you walking down the street with a

wheelbarrow of $50 bills, just to buy a bottle of milk. That's what can happen. That's what happened in Wyoming, in Germany. And so we have to make sure that they're stabilising prices. What that means is if you own a mortgage right now. Buckle up, because I think it's going to get worse. Okay. And so you're going to see a lot of major cities, real estate markets start to slow down a little bit. And if you add in stuff like immigration flowing etc., that's going to increase. All right. Just

quickly, if you're ready to take control of your finances but feel stuck on where to start. I have a solution. My book, Money Bias Happiness simplifies Investing and Wealth Building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. If higher rates squeeze buyers and slow prices in real estate, do you think early RBA cuts were still justified? Do you?

I don't think they were. I think it exacerbated the problem and I believe they were just harbouring and helping and protecting real estate investment because in Australia everyone's a property addict. All right. So, uh, what has happened in the realm of inflation is housing inflation is 5.5% food, 3.5% like the price of food is just going up and up and up. I've mentioned so many

times on this show. The price of a maxi bond is $6.60. What the heck happened to that? That's like doubled in price in the last 5 or 6 years. So you're going to see this start to play out, I should say, in your regular everyday shopping, your rent and so forth. Now here's the challenge. Wages haven't grown at the same rate. That's the issue. So if you're getting wage inflation at the same rate, then it means we're probably even even keel, especially if you have a well-paid job. But

if it hasn't, it means that things are just getting more expensive, right? So wage growth has lagged price increases in goods, meaning households have got less real income than just a year ago, three years ago, way less. In fact, I think it's Australia that leads the world, which is really sad in per capita GDP growth, meaning the country might be growing, but per capita per head per people here, we are not growing. In fact, we're going way backwards. And that's why it feels like

you're a lot poorer. But also the fact of the matter is this if your wages are where they are now and inflation is going way up and it costs a lot more to do things than what's going to happen to is even if wages continue to go up, they're not going to change the tax brackets, which means you're going to pay more taxes and you're going to get progressively poorer from the price of things. And the fact that you're going to be in a higher tax bracket, okay. So inflation is not a

good outcome for any of us. All right. So what as a result of that, what has happened in the data just recently is that household spending has started to fall. And that's why you're seeing stocks like JB Hi-Fi go from $120 a share down to 8070, back to where it belongs. Because, you know, people are just buying less things. It's starting to hurt, right? And you may have experienced this around a barbecue or a party at your friend's house. People are all talking about the cost of

living. So it's actually starting to hurt people now. And equity can't take you forever. Like people are like, oh, sorry, I've got all this, like 600 K in equity. Well, every time you borrow home equity, it's a borrowing and you've got to pay 5 or 6% on that borrowing to then spend your money. So I think a lot of people maybe living on equity, maybe you've maxed out credit cards and we're at the end of it. And I think you're going to start to see now people really struggling, which is not

good. Right. And it's just going to get worse because they have to increase rates. So going back to the wages, if your wages aren't keeping up with the rate of inflation growth, even if we're growing better as a country, you're not growing your wealth better. Right. So what comes next? Well, based on the data and based on government spending and based on the fact that the RBA got it wrong by reducing rates, which I mentioned on this show, they shouldn't do. If you go back far

enough and listen to the episode, you'll see me going, I don't know why they did that. That was really stupid. Obviously we're going to see more inflation now. And, you know, a few months later, while I hear it is don't take a genius to work it out. They should have put it up a lot more. They should have kept it at four and a half. They should have kept it not reduced it. They should have just let the market build around the rate instead of trying to follow the rate all the time.

It's typical of this government and the people in power. They're just trying to appease everybody and typically property investors and property owners. Right. Which is a lot of people. So are more rate hikes possible? I would say absolutely. Almost with certainty. It's going to happen because you see how they're like, oh, we'll do 0.25. They're just delaying it. Like they should just whack it

up a whole percentage point above and let the market swallow it. Um, instead of just ripping this bandit off so slowly. Right. So the RBA officials have repeated that inflation pressure is obviously going to remain high. And they say they're not going to hesitate to act. Let's hope that they act. So I would anticipate that we're going to see a 0.25% rise again and potentially another one this year. There could even be three. All right. And you're going to see this passed on

to the banks. I know that CBA the other day just passed the rate rise straight onto its customers. Okay. Um, how this will affect the property market? Well, it will certainly reduce the growth. It'll slow by activity and that's a good thing. But we'll also do is put people under more stress in

their mortgage repayments. And it's going to make it harder just to, you know, get by. Because all of a sudden if you add unemployment there for whatever, like let's say for example, I know it's a long tail risk, but let's say the onset of AI that's coming through, let us say that AI takes a lot of jobs, and all of a sudden we have a spike in unemployment, right? Then we're going to

have a serious problem, because not only do we have unemployment, but we've got rising rates. And that's going to be what could possibly cause a serious financial correction and some challenges for a lot of people. And that's a real possibility. We're seeing how fast it's overtaking software. We're seeing, you know how I mean, it may take longer than we think, but I think it's coming.

Right? So given what we know about the inflation target and how it's right, it's way above by double and rates are climbing by the facts and the data that they just increase rates. And they will again I would anticipate and the impact on people's wallets. Do you think the RBA should have done something different earlier. Do you think they should have drop rates? I don't think so. I

think they got it wrong and I think they've let down the Australian people more than once. They let us down when they told us rates are going to stay really low and then they smashed them up after Covid. They also let us down by dropping into 2.1% during Covid. And so we've been let down time and time again by the RBA. So you can't even take on board what they say with any level of trust and certainty, and that's a real challenge. So right now, inflation is higher than the RBA

wants by a factor of two is double. It's 100% higher than they want. The RBA has raised rates by up to 3.85% to fight it. Right. And it's likely they're going to do it again. The rate rise will slow the property growth which is great, but it'll squeeze households budgets, which is not so great. Who knows how far it can go. What if it goes to five, six, seven, 8%? We just don't know, right? Because the government is spending so much money with things like the NDIS that's blown up to $50

billion from $14 billion. And we'll keep growing. I mean there's towns where there's more NDIS providers than patients. And so we're seeing it. And just in the news this week the CFMEU was seen to have ripped off the Australian taxpayers 15 to $30 billion in fraud. They would just give them money. This is the government we're dealing with. And so this is where a lot of the inflation is stemming from. It's just unbelievable untapped money spending from a government that has no

understanding of the ROI. It's almost like they're trying to hurt the country. So many Australians and you might be included in this. You'll feel it in your mortgages, you'll feel it in your rent, and you'll feel it in your every expenses. So what do you do about it? Well, the first part of transformation is understanding and awareness. Now you're aware of it. What you can do is make sure your debt levels are steady and falling, and you're prepared for what happens when the rates

go up. And also make sure you're earning good money. Meaning, if you've just got one job, get a side hustle, you're going to be working more. Just get way ahead and be prepared for what can happen.

And of course, keep skilling up. Because with AI coming, you don't want to be in a position where you lose your job and can't get another job, or you can't start a business, or you can't innovate and pivot, um, and continue to earn money. Right? So make sure manage your debts, make sure you're increasing your income and diversifying your income. And of course, as I've said so many times on the channel, increase your assets. So you've got backup, right? Not just in your home. You live on

top of money. You haven't realised I'm talking about diversifying your assets into other things that produce more income. It could be a small business. It could be shares. It's something that produces income, right? So I'd love to know. Comment below. Do you think the RBA got it wrong? Yes or no? Was it inevitable? And of course hit the subscribe button if you're getting value from this channel.

Thanks so much for the comments you leave here. I believe you're all getting value from these. I try and give a no BS approach to what's happening in the Australian economy, the world economy, and how it actually impacts your own finances and how you can get stay in front of the game right by awareness. Putting some things in place and being ready for the ridiculous stuff that the government does and will continue to do. So. I hope you've enjoyed this. See in the comments and see

you in the next episode. Thanks for listening to. Money Grows on Trees. If you enjoyed the episode, leave a five star review on Apple Podcasts and Spotify, and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media platforms at Lloyd James Ross for more. See you in the next episode.