Interest rates: Why you should blame the Barmy Army for a rise in rates this year

The arrival of the beer-soaked Barmy Army for England’s Ashes cricket tour was a driving force behind a jump in inflation that could cost the average Australian home borrower $2000 this year.

Financial markets expect at least two interest rate increases before Christmas, raising official interest rates to 4.1 per cent and driving up the cost of credit cards, car loans and personal debt, while making overseas holidays cheaper and lowering the cost of imports, including fridges, cars and computers.

For a home loan borrower with a $500,000 mortgage on an average rate of 5.43 per cent, a single 25 basis point increase will cost an extra $79 per month. Two will cost an extra $158 per month. Over 12 months 50 basis points in extra repayments would cost the mortgage holder $1896.

For a household with a $1 million mortgage 50 basis points in rate increases would add $317 per month, or another $3804 per year.

“It means a lot of pain for mortgage holders,” said Sarah Orr from Comparethemarket.com. “If you look at a $600,000 loan a typical 25 basis point increase will add $94 to those monthly repayments. But, over the course of a year that’s an extra $1100, which is a significant amount of money for most people. It could be the difference between going on a little holiday, or being stuck at home.”

“It’s also going to impact household spending, people will have to cut back, tighten their belts. Some of the heat could come out of the housing market and the average home loan is enormous compared to just 10 years ago,” she said. “The banks won’t be able to lend so much either.”

Barmy Army

Economists at all four major banks expect rates to rise next week, as Wednesday’s horror data confirmed inflation has been climbing since last July and has ranged consistently above the central bank’s targeted range between 2 and 3 per cent.

Holiday costs surged 7.4 per cent from November to December due to hundreds of thousands of fans flocking to Australia for the Ashes.

“To some extent, the hospitality and travel costs were a one-off due to the Ashes and Barmy Army,” said Betashares chief economist David Bassanese.

“The airlines also never miss an opportunity to jack up prices when demand surges. But that’s only the caveat, the overall picture is that underlying inflation has been very strong since the September quarter.”

Core inflation - stripping out volatile items like energy - rose 3.3 per cent over the 12 months to December, with housing, energy, and education costs also climbing strongly.

Stocks fall

On the share market, interest rate sensitive technology stocks extended a tough start to 2026 after the inflation data.

The tech sector traded down 2.6 per cent near the closing bell as investors dumped businesses that lose value as interest rates rise.

The only two share market sectors higher in the afternoon were materials and energy, as oil and gold prices rose sharply to reflect inflationary pressures globally.

Any rate increase will benefit term deposit savers as banks lift interest rates payable. A typical 12-month term deposit at major banks currently sits between 4.25 per cent and 4.5 per cent, although that rate should climb in line with the cash rate, said Mr Basanesse.

The dollar traded for US70 cents on Wednesday afternoon and has advanced 9.5 per cent versus the greenback over the last 12 months as traders priced in the growing likelihood of rate hikes ahead.

A higher Australian dollar versus other international currencies means overseas holidays get a little cheaper and also benefits importers of household goods, electronics and automobiles.

The market is divided over whether the RBA lifts rates twice this year or not, with the economics teams at Australia and New Zealand Bank and AMP still only expecting a single 25 basis point rate increase in 2026.