Add Category
Surging inflation in the world’s largest economy could lead to steeper interest rate increases in Australia, financial experts have warned, after the local sharemarket tumbled to its worst day in almost three months on renewed fears of a global recession.
About $60 billion was wiped off the bourse on Wednesday as the benchmark ASX 200 index plunged 2.6 per cent. The fall came after a shock jump in US inflation sparked warnings of aggressive interest rate hikes from the US Federal Reserve, a move that may pressure the Reserve Bank of Australia to follow suit.
The ASX 200 had its worst day in almost three months on Wednesday.Credit:iStock
US consumer prices rose by a higher than expected 8.3 per cent in the year to August, sending shockwaves through global markets as investors fretted over the risk that more interest rate rises could spark a recession in the country.
Locally, fund managers warned Australia’s inflation could also be more difficult to tame, and one major investment bank raised its forecast for further RBA interest rate rises.
“I think it reinforces the message that inflation can be persistent and it can hang around for longer than we think,” ANZ Bank’s head of Australian economics, David Plank, said. “What the RBA do will depend more on our data, but I do think that with the inflation issues that other countries are suffering – the RBA is going to take some lessons from that.”
The RBA raised the official cash rate by 0.5 percentage points last week, meaning it has now jacked up interest rates from 0.1 per cent in May to 2.35 per cent this month, in the most aggressive monetary tightening since 1994.
Plank said it was “premature” to think the Reserve Bank had stopped making 0.5 percentage point increases in the cash rate, as it had at its past four rate-setting meetings.
Portfolio manager at Regal Funds Management, Mark Nathan, said there were some common forces driving inflation higher in the US and Australia, and a key reason the ASX fell was a fear of higher interest rates.
“A lot of the factors which are big issues in the US are also issues in Australia. We also have the issue of unemployment being so low, and potential wage inflation,” Nathan said.