Retail spending hit record highs in March and home lending proved stronger than expected in what could prove to be a last hurrah before rising interest rates start to take their toll.

The Australian Bureau of Statistics said retail trade rose 1.6 per cent in March to $33.6 billion, growing three times more than economists were expecting and 0.8 per cent higher than the previous record set in November 2021.

Australian Retailers Association CEO Paul Zahra thought it was a phenomenal result, although spending challenges loom in the months ahead.

“We’re in an uncertain economic environment, with cost-of-living pressures starting to bite and interest rates rising for the first time in over a decade,” Mr Zahra said.

The data came 24 hours after the Reserve Bank of Australia lifted the cash rate and following the recent inflation figures, which hit the highest level in more than 20 years.

The RBA increased the cash rate to 0.35 per cent from a record low 0.1 per cent following its monthly board meeting

RBA governor Philip Lowe warned further interest rate rises should be expected in coming months, because without them inflation would grow substantially.

Commonwealth Bank of Australia was the first of the big four banks to hike its standard variable home loan rates on Tuesday, passing on the full 0.25 percentage point increase.

ANZ and Westpac quickly followed suit, while National Australia Bank caught up with its competitors on Wednesday morning.

Prime Minister Scott Morrison urged all banks to pass on the higher interest rates to the depositors as well.

Only Westpac and NAB have announced saving rate increases so far among the big four banks.

Analysis from mortgage comparison site Rate City shows if the cash rate reaches 2.60 per cent by August 2024, as expected by NAB, someone with a $500,000 mortgage could see their monthly repayments rise by $675 compared to what they pay now.

“The May cash rate hike is just a taste of what’s to come from the RBA,” Rate City research director Sally Tindall said.

“Whether you’re on a variable rate or a fixed loan that’s due to end, get ready to be paying a lot more.”

The ABS reported housing lending also rose 1.6 per cent in March.

Owner-occupier lending rose 0.9 per cent, partially recovering from the 4.7 per cent drop in February.

Loans to housing investors also rose 2.9 per cent to a record high $11.7 billion.

“Lending will come under pressure over coming months as the RBA increases interest rates and as momentum in the housing market is already slowing,” AMP senior economist Diana Mousina said.

The CoreLogic national home value index for April released on Monday rose by just 0.6 per cent, the smallest increase since October 2020.

Stretched housing affordability, rising fixed-term mortgage rates and lower consumer sentiment were already weighing on house prices after last year’s spike.

Rising interest rates will also hurt business and industry.

The Australian Industry Group/Housing Industry Association performance of construction index eased 0.6 points to 55.9 in April, but held above the crucial 50-point market that separates expansion from contraction.

Ai Group chief policy advisor Peter Burn said while new orders are growing at a faster rate than in March, the industry is having difficulty sourcing materials and labour, as well as facing continuing prices pressures.

“The rise in interest rates announced yesterday by the Reserve Bank and the further rises foreshadowed can be expected to ease demand growth somewhat, particularly in the residential sectors,” Dr Burn said.

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)