CPI figures: Crunch time for interest rates

The chance of another interest rate rise before Christmas remains a possibility, and hangs very much on the release of the September quarterly inflation figures released this coming Wednesday. If the figure for underlying inflation is like the one we got last quarter then we can expect the Reserve Bank to lift official rates a quarter of a per cent two weeks later in early November.

The RBA says it expects inflation to be on the up next year so any further rise that sees the underlying rate nudge 3 per cent will worry it. We've already had one rate rise in response to last quarter's CPI jump, and that is still working its way through the system. But it's hard to see that has had a great effect yet, given consumer confidence and retail spending remain healthy.

The recent spike in the oil price is not likely to pose much of a threat to inflation and interest rates if the experience of the last couple of years is anything to go by. Western economies like Australia's are less oil-reliant these days and much more competitive, preventing businesses from passing through the costs of fuel to consumer products and services.

A 0.25 percentage point rate rise in November would add an extra $17 to monthly loan repayments for every $100,000 in borrowings. This would not be a good look in the housing market and among first homebuyers, already suffering as home loan affordability falls to record lows. Higher interest rates and enormous capital city house prices have seen the monthly repayment on the average first-homebuyer loan rising another 4 per cent to $2600, or almost 32 per cent of income.