That in turn will continue to put pressure on domestic inflation. The Reserve Bank of Australia (RBA) kept interest rates on hold this week at 7.25%, but it is getting very worried about rising inflation. We do not envy the RBA Governor Glenn Stevens. If he raises interest rates, he could put large parts of the country's population effectively in recession. If he doesn't raise interest rates, he risks seeing higher inflation eat away the country's prosperity. What's a Governor to do? Sit on the fence, of course. But as we all know, sitting on a fence for long periods of time ultimately becomes very painful.
We were talking to a real estate friend of ours on the weekend. He seemed to be spending more time at home recently. He said it was like someone had turned off the tap about 6-8 weeks ago. Sales have completely dried up. It's no coincidence that the tap was turned off around the same time as interest rate rises and higher petrol prices started to really bite. Expect falling house prices soon - if people really want to sell their houses, the only thing they can do is reduce the price.
