Almost as expected, at today’s RBA meeting the board has moved to increase the cash rate from 6.75% to 7.0% in the fight against inflation within the Australian economy. Prior to the meeting a raft of pleas from union leaders, community groups, government and opposition members asking the RBA to consider negative ramifications on those that are currently under mortgage stress and financial pressure.

There was also a timely report from JP Morgan and Fujitsu indicating Mortgage pain for 750,000 owners with their per cent of income used for mortgage repayments rising above 30%. The report also indicated that 250-300,000 may suffer from severe mortgage stress which could lead to defaults and repossessions.

Unfortunately, as it would seem, in the face of rising inflation stemming from labour shortages and high usage of capacity the inflation figure won. And previous rate rises have failed to dent consumer spending with retail sales figures continuing to rise. Sales for new cars was exceptionally strong in December with a record 91,384 new motor vehicles sold in the month and a record 1,049,982 vehicles sold in 2007.

The average price for a home jumped 12.3 per cent nationwide last year and combined with rising interest rates things are not looking attractive for new home buyers. With house affordability one of the big topics in last years election campaign the government has brought forward it’s ‘First Home Saver Account’, an $850 million dollar plan to help first time home buyers in their efforts to save a deposit. More details at: First Home Saver Account .

So, where to from here? Tough call. There are plenty of economists offering their opinions ranging from Dr Steven Keen suggesting the RBA could be out of sync in his latest article Stevens is from Mars, Bernanke is from Venus? through to the latest statement from Glenn Stevens, governor of the RBA, indicating that there is no suggestion of any rate easing in the near future.

The one thing we do need to remember is that there is such a thing as the ‘economic cycle’, the word ‘cycle’ hasn’t featured much in any talk about the Australian economy due to it’s just been news about growth and more growth. Although that doesn’t mean that it doesn’t exist and that we are not in a part of that cycle albeit in a prolonged stage…..