Worrying AMP graph that proves interest rates could still rise as prices soar across the board – amid fears Anthony Albanese’s tax cuts will stoke inflation even more

A worrying chart compiled by economic experts shows interest rates in Australia could still rise – simply because inflation is now a home-grown problem, with immigration at record highs.

The consumer price index rose 4 percent in the period to May, up from 3.6 percent in April, pushing inflation further above the Reserve Bank’s target of 2 to 3 percent.

That means Australian borrowers face more rate hikes, even though Canada and the European Union both cut rates this month.

Inflation is rising in Australia, but falling in some wealthy countries, including the UK, US and Sweden.

AMP economists Shane Oliver and My Bui have put together a new chart showing how services, unlike goods, make up six of the ten items with the biggest price increases.

These items were also all above the broader inflation rate of 4 percent, showing that Covid supply chain restrictions are no longer the main driver of inflation.

“Service prices are more persistent and are currently the biggest concern for the Reserve Bank,” AMP said.

“The upside surprise in monthly inflation figures over the past three months is a warning of the bumpy path of the disinflation process, especially as services inflation appears to be picking up.”

Labour’s revised stage three tax cuts, which come into effect on July 1, are expected to be spent on essential services, with rent, electricity, health care and insurance prices rising to levels well above the consumer price index.

“On the one hand, people have a bit more money in their pockets,” Ms Bui told Daily Mail Australia.

“They’re probably going to save a lot of these tax cuts – if it’s spent, it’s probably going to be used to pay the electric bills that are still very high right now, pay the rent, pay for health insurance instead of out to eat.’

This meant that another rate hike in August, when the RBA next meets, was a 45 percent chance.

“I think 45 percent is quite high,” Ms Bui told Daily Mail Australia.

Coalition leader James Paterson said Australian borrowers should brace for possibly two more rate hikes.

“Unfortunately there is a very high risk of a rate hike or perhaps two rate hikes between now and the end of the year or early next year,” he told Sky News on Thursday.

AMP economists Shane Oliver and My Bui (pictured) have put together a new chart showing how services, unlike goods, made up six of the top 10 items driving big price increases

Ms Bui said Australia’s high population growth was putting pressure on rental prices, along with demand for both goods and services, with a record 547,300 migrants, net, moving to Australia in 2023.

That was the highest number ever for a calendar year, based mainly on knowledge migrants and international students, minus permanent departures.

“We’ve also had quite a bit of population growth over the last year and that has kind of boosted the overall demand for these essential items,” she said.

On the price increase graph, tobacco had the largest increase at 13.4 percent, followed by gasoline at 9.3 percent, but both products are also more expensive due to federal government excise taxes.

The next six on the list were services, with rents rising 7.4 percent, electricity costs up 6.5 percent, healthcare costs up 6.1 percent, education up 5.2 percent and transportation up 4.9 percent.

“So yes, some of it came from back home, given the stronger demand for everything,” Ms Bui said.

“If you look at the largest service items, they are more non-discretionary; things that people actually have to pay for, they don’t really have a choice.’

The Reserve Bank left interest rates unchanged this month at 4.35 percent, the highest level in 12 years.

But more bad news from the extended June quarter inflation data on July 31 could lead to the RBA raising rates after it meets again on August 5-6.